Gold Bulls Run as Assets in Biggest ETP Erase 2014’s Decline

Jul 09, 2014 10:35 am ET

(Updates price and indexes in sixth paragraph.)

July 9 (Bloomberg) -- The bulls are running in Spain and the gold market.

Assets in the SPDR Gold Trust, the metal’s biggest exchange-traded product that counts billionaire John Paulson as its largest holder, erased this year’s decline. Bullion’s 2014 rally is outpacing equities, Treasuries and bonds, defying bearish forecasts from Goldman Sachs Group Inc.

Escalating tensions in Iraq and Ukraine boosted demand for the metal as a haven, and the Federal Reserve affirmed that U.S. interest rates will stay low for a “considerable time,” spurring inflation concerns. Money managers increased bets on a Comex futures rally for the fourth straight week, government data showed.

“People are seeing the need for gold again,” Jeff Sica, who helps oversee $1 billion at Sica Wealth Management in Morristown, New Jersey, said yesterday in a telephone interview. “Geopolitical unrest across the globe is imploding, and people are realizing that they need to start hedging against future inflation.”

Yesterday, SPDR holdings rose 2.09 metric tons to 800.28 tons. They are up 0.3 percent this year after falling as much as 2.7 percent through May 21 to the lowest since December 2008. Last year, assets tumbled 552.6 tons, or 41 percent, as futures plunged 28 percent, the most in three decades.

Gold futures for August delivery rose 0.6 percent to $1,324.40 an ounce at 10:31 a.m. on the Comex in New York. The price has climbed 10 percent this year. The Bloomberg Commodity Index of 22 raw materials is up 5.1 percent in 2014, while the MSCI All-Country World Index of equities gained 5 percent. The Bloomberg Treasury Bond Index advanced 3 percent.

Crisis Mounts

Tensions have escalated in the Middle East and Eastern Europe. Ukrainian rebels seized a town in the Luhansk region yesterday after a retreat from eastern strongholds as European Union states considered expanding a list of Russians facing sanctions as soon as today. Sunni tribes battling the Shiite-led government of Iraq won’t stop until Prime Minister Nouri al- Maliki steps down, a clan chief said.

In the U.S., inflation expectations, measured by the five- year Treasury break-even rate, have climbed 12 percent this year.

Goldman Sachs and Societe Generale SA expected last year’s slump to continue. The price will drop to $1,050 in 12 months, Goldman analysts reiterated in a June 23 report, unchanged from their outlook at the start of the year.

12-Year Run

Last year, more than $73 billion was wiped from the value of global gold ETPs as prices slumped. Bullion ended a 12-year bull run in 2013 after some people lost faith in the commodity as a store of value amid an equity rally and muted inflation.

“There is still a lot of skepticism in the market, but once we see gold go above $1,400, we will see more buyers come out,” Peter Schiff, the chief executive officer of Westport, Connecticut-based Euro Pacific Capital, said in a telephone interview. “At some point, the fear of gold going to $1,000 will be replaced by ‘I don’t want to miss out’.”

The running of the bulls started July 7 at Spain’s San Fermin festival, which attracts thousands of tourists.

--With assistance from Daryna Krasnolutska in Kiev and Zaid Sabah in Washington.