Remember I predicted June 16th something big will happen and carry over to Monday the 19th ;-)
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Gold May Rise on Concern Fed Will Struggle to Stem Inflation
June 12 (Bloomberg) -- Gold may end the longest slump in two years on concern the U.S. Federal Reserve will fail to curb inflation, boosting the appeal of bullion as a hedge against rising consumer prices.
Sixteen of 41 traders, investors and analysts from Sydney to Chicago surveyed by Bloomberg News on June 8 and June 9 advised buying gold, which fell 4.4 percent last week to $612.80 an ounce in New York. Fifteen recommended selling, and 10 were neutral.
Gold is up 44 percent from a year ago, even after the Fed raised its benchmark interest rate 16 times since June 2004 to 5 percent from a 46-year low of 1 percent. Consumer prices probably climbed 3.9 percent in May from a year earlier, up from a 3.5 percent gain in April, according to the median estimate of 12 economists in a separate Bloomberg survey.
The Fed has ``been raising rates every meeting, yet we're still seeing inflation,'' said Larry Young, a senior trader with Infinity Brokerage Services Inc. in Chicago. Inflation is accelerating, and ``we are going to see buyers come in and hold gold at the $600 range,'' he said.
Gold futures for August delivery fell $28.20 last week on the Comex division of the New York Mercantile Exchange. The decline was the fourth straight, the longest losing streak since a seven-week slide ended in May 2004.
The drop surprised a majority of analysts surveyed June 1 and June 2, who had forecast an increase. The Bloomberg survey has forecast the direction of prices accurately in 68 of 111 weeks, or 61 percent of the time.
Some investors buy gold to preserve purchasing power in times of accelerating inflation.
`Serious Problem'
``Everybody is increasingly aware of the extent that inflation is becoming a serious problem, so that will keep the demand for gold strong,'' said James Turk, founder of GoldMoney.com, which stores gold for investors. ``The underlying problems of growing federal budget deficits remain, as does the trade deficit.''
The Labor Department will probably say on June 13 that producer prices rose 4.3 percent in May from a year earlier after a 4 percent gain in April, another Bloomberg survey showed. The agency is scheduled to release the consumer-price report the following day.
Gold futures surged to $873 in 1980, when a jump in the cost of oil led to a 13 percent annual rise in U.S. consumer prices.
Fed Chairman Ben S. Bernanke told a June 5 conference in Washington that recent gains in inflation are ``unwelcome,'' and Fed Bank of Atlanta President Jack Guynn on June 7 called inflation ``bothersome.''
Fed `Credibility'
The central bank probably will raise its benchmark rate by a quarter-percentage point on June 29 to 5.25 percent, a Bloomberg survey of economists shows.
``I see a larger story emerging, and that is one of the Fed beginning to loose its credibility as an inflation fighter,'' said Ralph Preston, an analyst at Heritage West Financial Inc., a futures brokerage in San Diego. He predicted gold will rise this week.
Gold reached a 26-year high of $732 an ounce on May 12, partly because of surging energy costs. Crude-oil prices have risen 32 percent in the past year, reaching a record $75.35 a barrel on April 21 and April 24. Oil first breached $70 a barrel in August after hurricanes disrupted production in the Gulf of Mexico.
Energy Prices
``We're just now in the hurricane season,'' said Infinity's Young. ``Let's say we have a couple of storms that causes some disruptions in Gulf Coast area. We're going to see a direct impact in our gasoline prices and electricity rates. Higher prices are just going to trickle down to in the grocery stores and transportation.''
Gold also may rise as the lowest prices in almost two months attract investors seeking better returns than stocks. Gold has gained 18 percent this year, outperforming the 0.3 percent return from Standard & Poor's 500 Index.
The S&P 500 fell 2.8 percent last week to 1252.30, the lowest this year and the biggest weekly loss since April 2005, as speculation increased that higher interest rates will push the economy into a recession.
``Funds trying to avoid the crash in stock markets may come back to the gold market,'' said Kim Pom Chong, assistant manager at Hansung Co., a precious metals trading company in Seoul. ``Investors may seek safe assets in case there are clear signs of a slowing economy. Gold and bonds will benefit.''
Speculators
Hedge-fund managers and other large speculators decreased their position in Comex gold futures in the week ended June 6, U.S. Commodity Futures Trading Commission data shows.
Speculative net-long positions, or bets that gold prices will rise, fell 5.5 percent to 95,896 contracts, the lowest since the week ended Aug. 2, the commission said.
``It's getting a little oversold on the short-term basis, so I would not be surprised to see a bounce in the precious metal,'' said Chip Hanlon, president of Delta Global Advisors, Inc. in Huntington Beach, California, which manages about $150 million, including 5 percent invested in gold and copper.
To contact the reporter on this story:
Choy Leng Yeong in Seattle at clyeong@bloomberg.net
Last Updated: June 11, 2006 14:06 EDT |
