Bloomberg News

Gold Sales From Soros Reveal 12-Year Bull Run Decay

By Nicholas Larkin and Debarati Roy on March 12, 2013

Gold’s worst start to a year in a quarter century and the biggest sales by investors on record are increasing concern that bullion’s longest rally since the end of World War I is ending.

Investors sold 106.2 metric tons valued at $5.4 billion from exchange-traded products in February, the most since their creation in 2003, data compiled by Bloomberg show. Another 26.1 tons was cut since then. Credit Suisse Group AG and Barclays Plc say the 12-year rally will peak in 2013 and billionaire George Soros reduced his stake in the biggest ETP by 55 percent in the last quarter. Prices are within 5 percent of a bear market after the longest run of monthly losses since 1997.

Hedge funds are now their least bullish since 2007 as economies accelerate and Federal Reserve policy makers review stimulus. Bullion as much as doubled after central banks, led by the Fed, started buying more than $3.5 trillion of debt from December 2008 to restore growth. With global equities at a four- year high and the dollar near its strongest in seven months, eight of 13 analysts surveyed by Bloomberg said they expect lower average gold prices in 2014 than this year.

“There is a belief that the world economy is improving,” said John Toohey, a San Antonio, Texas-based vice president of equity investments at USAA Investments, which manages more than $54 billion of assets. “We are especially seeing the signs in U.S. and that may at some point lead to higher interest rates. It seems as if the fast money is moving out of gold.”

Worst Start

Gold slid 5.6 percent to $1,581.55 an ounce in London this year by yesterday’s close, the worst start since 1988. It traded at $1,595.71 today and averaged a record $1,669 last year. The Standard & Poor’s GSCI gauge of 24 commodities rose 1.1 percent since the start of January and the MSCI All-Country World Index (MXWD) of equities gained 6.4 percent. Treasuries lost 1.1 percent, a Bank of America Corp. index shows.

Goldman Sachs Group Inc. reduced its three-month forecast by 12 percent to $1,615 on Feb. 25 and expects $1,550 in a year. Gold is “significantly overvalued” and unlikely to return to its September 2011 record of $1,921.15, Credit Suisse said Feb. 1. The bank, along with Barclays Plc, Societe Generale SA, Natixis SA, BNP Paribas SA, ABN Amro Bank NV, Danske Bank A/S and TD Securities Inc., is predicting lower average prices next year than in 2013.

About $6.8 trillion was added to the value of global equities since November as China accelerated for the first time in two years. Economists surveyed by Bloomberg expect U.S. growth to gain every quarter this year and the International Monetary Fund predicts global expansion will climb to 3.5 percent in 2013 from 3.2 percent in 2012. U.S. unemployment fell to a four-year low of 7.7 percent last month, as job growth surged from automakers to builders to retailers.

‘Asset Bubble’

Soros Fund Management LLC, founded by the 82-year-old who called bullion the “ultimate asset bubble” in 2010, owned about $97 million of metal through the SPDR Gold Trust as of Dec. 31, a regulatory filing showed last month. Louis Moore Bacon’s Moore Capital Management LP sold its stake in the SPDR fund, valued then at $16 million, and cut holdings in the Sprott Physical Gold Trust by 53 percent to $12.1 million in the fourth quarter. Spokesmen for both investors declined to comment.

John Paulson, the largest SPDR investor, kept his holding unchanged last quarter, his filing showed. The stake is now valued at $3.4 billion. New York-based Paulson & Co.’s investors can choose between gold-and dollar-denominated versions of most of its funds. The 57-year-old told clients March 6 that his Gold Fund fell 26 percent this year. Stefan Prelog, a spokesman, declined to comment.

Mario Draghi

Central bank asset buying won’t end any time soon and concern about currency debasement combined with rising expectations for inflation will spur demand for gold, Morgan Stanley said in a Feb. 25 report. The median estimate of the 13 analysts surveyed by Bloomberg is for a record annual average of $1,700 in 2013, falling to $1,638 in 2014.

Bank of Japan Governor-designate Haruhiko Kuroda said last week the central bank should bring forward open-ended asset purchases scheduled to start next year. European Central Bank President Mario Draghi said March 7 that officials discussed cutting borrowing costs further. Gold usually earns returns only through price gains, increasing its allure at a time of record- low interest rates.

“Just because it feels that the economy is improving does not necessarily mean that is actually happening,” said Michael Cuggino, who manages $17 billion of assets at Permanent Portfolio Family of Funds Inc. in San Francisco. “We could continue to see governments trying to boost growth.”

Gold Sales From Soros Reveal 12-Year Bull Run Decay - Businessweek