Gold May Rise for Third Week on Demand for Dollar Alternative
Aug. 7 (Bloomberg) -- Gold may rise for a third straight week on speculation that the dollar will slide as the Federal Reserve halts interest-rate increases, boosting the appeal of the precious metal as an alternative to the U.S. currency.
Twenty-one of 35 traders, investors and analysts surveyed by Bloomberg News from Sydney to Chicago on Aug. 3 and Aug. 4 advised buying gold, which rose 1.3 percent last week to $656 an ounce in New York. Seven said to sell, and seven were neutral.
Gold has climbed 26 percent this year as the dollar slid 8.7 percent against the euro. The dollar fell to a two-month low last week on increasing speculation the Fed will take a breather after boosting borrowing costs at each of the 17 policy meetings since June 2004.
``The dollar is the single most important factor,'' said A.C. Moore, who manages the $500 million Dunvegan Growth fund in Santa Barbara, California, and has been buying gold the past month. ``We're moving more positively back into gold. The dollar is vulnerable to potential slippage versus other currencies.''
Gold futures for December delivery rose $8.20 an ounce last week on the Comex division of the New York Mercantile Exchange. A majority of analysts surveyed July 27 and July 28 anticipated the gain. The Bloomberg survey has forecast the direction of prices accurately in 74 of 119 weeks, or 62 percent of the time.
Jobs Data
The dollar slumped on Aug. 4 after the U.S. added fewer jobs than forecast in July, and the unemployment rate rose for the first time since February. Interest-rate futures on Aug. 4 showed 16 percent odds of a quarter-percentage point increase in borrowing costs to 5.5 percent on Aug. 8, down from 31 percent on July 31 and 85 percent on June 26. Fed policy makers are scheduled to meet tomorrow.
Gold, after reaching a 26-year high of $732 on May 12, tumbled to a two-month low of $546.40 on June 14 on concern the Fed would continue to raise rates to fight inflation.
``The Fed will probably put off raising interest rates this time,'' said Toshimitsu Kawanabe, chief analyst at commodity brokerage Taiheiyo Bussan Co. in Tokyo. ``They're in a sticky situation. A trend to a weak dollar would support gold.''
A pause by the Fed at a time when central banks around the world are raising rates may make gold cheaper for overseas buyers.
The European Central Bank on Aug. 3 lifted its key rate a quarter point to 3 percent and said further increases are ``warranted.'' The Bank of England surprised investors the same day by raising rates to 4.75 percent. The Bank of Japan on July 14 ended its near-zero rate policy.
`Speculative Buys'
``The dollar might get cheaper, so it's inducing speculative buys'' in gold, said Yukari Nozaki, an analyst at Ace Koeki Co., a commodity futures brokerage in Tokyo.
``All the fundamentals that have been driving the gold price over the last several years are still in place,'' Newmont Mining Corp. Chief Executive Officer Wayne Murdy said in a July 31 interview. A widening U.S. current-account deficit will hurt the dollar, and investor demand for gold will climb because production ``will be at best flat and potentially continue to decline,'' he said.
Newmont, based in Denver, is the world's second-biggest gold producer behind Barrick Gold Corp.
The fighting between Israel and Iranian-backed Hezbollah forces in Lebanon may spur concern that regional oil exports will be disrupted, boosting the appeal of gold as a hedge against inflation. Oil prices may rise this week on speculation the conflict will spread in the Middle East, a separate Bloomberg survey showed.
Oil Rally
Oil has climbed 22 percent this year, almost matching gold's gain. Petroleum prices surged in 1974, helping trigger a recession, after an embargo that followed the Arab-Israeli war in October 1973. Oil more than doubled in 1979 after Iran's revolution slashed the nation's exports. Gold futures reached $873, the highest ever, in January 1980.
``Continued concerns about inflation and the disaster unfolding in the Middle East will keep gold well bid,'' said Stuart Flerlage, managing principal at NuWave Investment Corp. in New York.
Wide price fluctuations may discourage some investors. Gold's volatility, or the rate at which a price moves up and down, was 30 percent in the past 100 sessions, the highest for that period since 1982.
``We are not bullish in the short term,'' said Monal Thakker, a director at Amrapali Industries Ltd., a brokerage in Mumbai. ``Volatility is too high, and volume is very thin.''
Volatility Protection
Some analysts recommended investors buy a straddle, or bets on different delivery months, to protect themselves from the volatility.
``We expect gold prices to rise sharply between now and the end of the year, but prices also are extremely vulnerable to sharp sell-offs,'' said Jeffrey Christian, managing director at CPM Group, a metals researcher in New York.
Hedge-fund managers and other large speculators increased their net-long position in New York gold futures in the week ended Aug. 1, U.S. Commodity Futures Trading Commission data showed.
Speculative long positions, or bets prices will rise, outnumbered short positions by 102,761 contracts on the Comex, the commission said in a report Aug. 5. Net-long positions rose by 1,206 contracts, or 1.2 percent, from a week earlier. |
