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Aug. 28 (Bloomberg) -- Gold's appeal is fading as a slowing U.S. economy and lower oil prices ease inflation concerns, reducing the metal's attraction as a hedge against rising consumer prices.
The percentage of traders expecting higher prices has fallen to 38 percent, the lowest in five weeks, based on a survey of 32 strategists and investors contacted by Bloomberg on Aug. 24 and Aug. 25 from Sydney to New York. The percentage dropped from 51 percent a week earlier. Nineteen percent advised selling gold this week, and 44 percent were neutral.
Gold has plunged 13 percent from a 26-year high of $732 an ounce on May 12 as two years of interest-rate increases by the Federal Reserve started to curb the pace of U.S. economic growth. Oil prices are down 4.7 percent this month and yields on inflation-protected Treasury securities show inflation expectations have fallen from a one-year high on May 11.
Fed policy makers ``set out to contain inflation, and they have,'' said Ron Goodis, director of retail trading at Equidex Brokerage Group in Closter, New Jersey. ``With the economy slowing down, demand for metals is expected to slow down, too.''
Gold futures for December delivery rose $9.10, or 1.5 percent, to $630.80 an ounce last week on the Comex division of the New York Mercantile Exchange. Prices are up 43 percent in the past year. A majority of analysts surveyed Aug. 17 and Aug. 18 anticipated the gain. The Bloomberg survey has correctly forecast prices in 75 of 122 weeks, or 61 percent of the time.
The price of the metal for immediate delivery in London today rose less than 0.1 percent to $622.65 an ounce as of 9:10 a.m. local time.
The margin by which the 10-year note's yield exceeds those of comparable securities that are linked to inflation had increased to 2.74 percentage points on May 11. The difference represents the expected average inflation rate over the life of the notes. It narrowed to 2.53 percentage points on Aug. 24.
Wagers on Bernanke
``I wouldn't go so far as to say the market is feeling inflation is controlled,'' said Michael Alfstad, chief executive officer of Alfstad Capital LLC in Seattle. ``But it is willing to place some large wagers that Ben Bernanke is correct about slowing growth leading to diminished inflationary problems.''
Bernanke took over as chairman of the Fed in February, succeeding Alan Greenspan.
Purchases of new homes in the U.S., which account for 15 percent of the market, dropped 4.3 percent in July to an annual pace of 1.072 million, the Commerce Department said on Aug. 24. Sales of previously owned dwellings dropped to the lowest in more than two years.
``The housing data clearly indicates the economy is slowing, which should translate to lower consumer spending and lower inflation,'' said Patrick Lyn, a commodity analyst at Tembec Inc. in Toronto. He recommended selling gold this week.
Economy, Inflation
U.S. economic growth slowed to a 2.5 percent annual rate in the second quarter, less than half the pace of the previous quarter.
The Fed's preferred gauge of inflation, the core price consumption-expenditure index, increased 2.4 percent in June from a year earlier. It's expected to remain the same in July when the Commerce Department reports on Aug. 31, another Bloomberg survey showed.
Some analysts said inflation hasn't slowed and sluggish growth may encourage investors to buy gold to guard against stagflation.
``Interest rates will likely stay the way they are,'' said Friedrich Kernstock, a metals trader at Kernco Metal Trading GmbH in Klosterneuburg, Austria. ``Inflation fears will be matched by fears of recession. Under the present circumstances, buy gold.''
Gold and oil have moved in lockstep this year, and analysts in a separate Bloomberg survey said petroleum prices may drop this week. Oil reached a record $78.40 a barrel on July 14, partly on concern tensions in the Middle East may disrupt supplies. Prices have since declined 7.5 percent to $72.51.
`Subdued'
``Geopolitical factors and high crude prices have already been discounted,'' said Kishore Narne, head of commodities at Anand Rathi Commodities Ltd. in Mumbai. ``Gold is likely to remain subdued.''
Precious-metal prices are still too high for some Indian jewelers, the biggest buyers of bullion. India bought 135 tons of gold for jewelry in the second quarter, down from 587 tons a year earlier.
``Physical demand in India and Asia continues to be sluggish,'' said Ravi Jalan, director at New Delhi-based Jalan Commodities Ltd. ``I don't foresee much movement in gold.''
Gold may fall should central banks in Europe sell the metal before a Sept. 26 deadline. Under an accord known as the Washington Agreement, European central banks agreed to limit sales to 500 tons a year. They haven't reached the target yet.
``Gold is under pressure over rumor-mongering with regard to central banks,'' said Rhona O'Connell, managing director at GFMS Ltd., a London-based researcher.
Hedge-fund managers and other large speculators decreased net-long positions in Comex gold futures in the week ended Aug. 22, Commodity Futures Trading Commission data showed on Aug. 25.
Speculative long positions, or bets prices will rise, outnumbered short positions by 95,948 contracts on the Comex, the commission said. Net-long positions fell by 4,596 contracts, or 4.6 percent, from a week earlier. |
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