DEZ - Gold May Rise for 2nd Week on Inflation Concern, Survey Shows
Feb. 20 (Bloomberg) -- Gold may rise for a second week, extending a rally that sent prices to a 25-year high, as investors buy bullion as a hedge against inflation.
Twenty-three of 37 traders, investors and analysts surveyed from Sydney to Chicago on Feb. 16 and Feb. 17 advised buying gold, which last week rose $1.10 to $554.60 an ounce in New York. Ten respondents advised selling and four were neutral.
Jim Rogers, who co-founded the Quantum hedge fund with George Soros in the 1970s, said in a Feb. 14 interview that gold's rally will continue, eventually topping its record high of $873 an ounce. U.S. wholesale prices rose 0.3 percent in January, and costs excluding food and fuel increased by the most in a year, the government said Feb. 17.
There is ``increasing inflationary concern,'' said Emanuel Balarie, senior market strategist at commodity brokerage Wisdom Financial Inc. in Newport Beach, California. ``I've had a lot more people asking me lately about just buying gold, specifically the older people who have experienced a decrease in their purchasing power.''
The 0.2 percent gain in gold futures last week on the Comex division of the New York Mercantile Exchange was predicted by a majority of analysts in a survey Feb. 9 and Feb. 10. Bloomberg's survey has forecast the direction of prices accurately in 56 of 95 weeks, or 59 percent of the time.
Investors have tripled their holdings in five gold-backed exchange-traded funds, including the U.S. traded StreetTracks Gold Trust, to 429 metric tons since November, according to London-based ETF Securities Ltd.
Gold Rally
Gold jumped 18 percent last year, the fifth straight annual gain. Prices are up 6.9 percent this year and reached a 25-year high of $579.50 on Feb. 2. The StreetTracks fund is up 29 percent in the past year. Such funds, which follow the gold price, allow investors to invest in bullion without purchasing the metal or futures contracts.
The Reuters Jefferies CRB Index of 19 commodities has risen 12 percent in the past year and reached a record $350.96 on Feb. 1. Copper rose to a record $2.339 a pound on Feb. 7. Sugar set a 24-year high of 19.73 cents a pound on Feb. 3. Retail gasoline in the U.S. is up 23 percent in the past year to an average of $2.28 a gallon, government figures show.
``If commodities prices are at their multi-year highs, then you'll expect that the producers and the manufacturers are going to pass through these costs,'' Balarie said. ``You're paying more at gas pumps. My cable bill was just raised, food prices are a little bit high.''
Producer Prices
The 0.3 percent increase in the measure of prices paid to factories and other producers followed a 0.6 percent gain in December, the Labor Department said Feb. 17 in Washington.
The core rate, which excludes food and energy, rose 0.4 percent, twice as much as forecast, after a 0.1 percent rise the previous month.
Some investors buy gold in times of inflation, which erodes the value of fixed-income assets, such as bonds. Gold futures surged to $873 an ounce in 1980, when U.S. consumer prices rose 12.5 percent from the previous year.
Consumer prices probably advanced 0.5 percent last month, the most since September, according to the median of 49 analysts surveyed by Bloomberg.
The Labor Department is scheduled to release the report Feb. 22.
Gold reached a 24-year high of $541 an ounce on Dec. 12 as U.S. consumer prices increased 3.5 percent in 2005, the most since 1990.
Inflation Concern
Inflation is a concern for Federal Reserve Chairman Ben S. Bernanke. In his first report to Congress on Feb. 15, Bernanke said the economy is in a sustained expansion that may require additional interest rate increases to restrain inflation.
Construction began on homes at an annual rate of 2.276 million in January, up 15 percent from December's revised 1.988 million and the most since March 1973, the Commerce Department said last week.
With the ``housing report indicating stronger economic growth and with unemployment at 4.7 percent, the Fed is perceived as slightly behind in raising rates,'' said John Person, president of Nationalfutures.com Advisory Services Inc., an investment advisory and research company in Palm Beach, Florida.
The Fed has raised its benchmark interest rate 14 times since June 2004 to 4.5 percent, the longest cycle of increases since Alan Greenspan became chairman in 1987.
After accounting for inflation, ``real interest rates are still close to zero,'' James Turk, founder of GoldMoney.com said. ``Interest rates would have to rise a lot higher still for them to have any negative effect on gold, which remains in a bull market.''
Speculators
Speculators almost doubled their holdings in gold futures since August, reports from the U.S. Commodity Futures Trading Commission show.
Hedge funds and other large speculators held net-long positions, or bets prices will rise, totaling 118,914 Comex gold contracts as of Feb. 14, up from 65,569 on Aug. 2, data from the commission showed on Feb. 17. Speculators amassed 177,410 contracts on Oct. 11, the most since at least February 1983.
Demand for StreetTracks rose 57 percent in the past three months to 110.8 million shares outstanding. Each share represents a 10th of an ounce of gold.
A futures contract is an obligation to sell or buy a commodity at a set price by a specific date.
To contact the reporter on this story:
Choy Leng Yeong in Seattle at clyeong@bloomberg.net
Last Updated: February 19, 2006 13:50 EST
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