Gold Extends Longest Streak Since 1920 on Central-Bank Stimulus

by on January 1, 2013 10:02 am BST

Gold rose, capping the longest annual gain since at least 1920, on renewed concern that central banks from Europe to China will take steps to spur economic growth and as U.S. leaders near a budget deal.

Gold futures for February delivery gained 1.2 percent to settle at $1,675.80 at 1:41 p.m. on the Comex in New York, while prices for immediate delivery jumped as much as 1.5 percent. Through Dec. 28, the metal had slumped for five straight weeks as the deadline for the so-called fiscal cliff of automatic tax increases and spending cuts due to take effect tomorrow loomed. President Obama said today at a White House event that an agreement was “within sight.”

Investors from John Paulson to George Soros have a $140.6 billion bet via near-record holdings in gold-backed exchange- traded products after the Federal Reserve said Dec. 12 it would buy $45 billion of Treasury securities a month as of January, adding to $40 billion a month of mortgage-debt purchases. Gold will probably peak in 2013 because of improving U.S. growth, even as the Fed expands stimulus, Goldman Sachs Group Inc. said Dec. 5. Morgan Stanley said a day later bullion will be among next year’s best-performing commodities.

“All that money printing across the globe put a bid under gold,” Matt Zeman, a strategist at Kingsview Financial in Chicago, said in a telephone interview. “There is overall optimism about the fiscal deal so we are seeing buying across the counter.”

Record Average

The metal averaged a record $1,670.71 this year in New York even as it slid 6 percent since September, the biggest quarterly drop since 2004. The run of annual gains in the immediate delivery market is the longest since at least 1920. The Standard & Poor’s GSCI gauge of 24 commodities gained 0.3 percent this year, while the MSCI All-Country World Index of equities climbed 13 percent. Treasuries returned 2.3 percent, a Bank of America Corp. index (MXWD) shows.

This year, bullion gained 7 percent on the Comex, where floor trading will be closed tomorrow for New Year’s Day. Platinum futures rallied 9.8 percent this year in New York and palladium gained 7.2 percent as labor unrest in South Africa helped curb supply. Silver increased 8.3 percent.

Congress is working to avert more than $600 billion in higher taxes and spending cuts and a failure risks a recession, the Congressional Budget Office has said. Obama, speaking at the White House, said he is “hopeful” Congress will reach a deal to prevent tax hikes while dealing with the deficit in stages.

Budget Talks

Holdings in gold-backed ETPs rose 0.2 metric ton to 2,631.8 tons on Dec. 28, less than 1 ton below the record set Dec. 20, data compiled by Bloomberg show. Nations from Brazil to Iraq to Russia are buying metal to add to reserves. Prices will reach $2,000 next year, according to a Bloomberg survey of 49 traders, investors and analysts in mid-December. Bullion in London set an all-time high of $1,921.15 in September 2011.

The International Monetary Fund expects 3.6 percent global economic growth in 2013, up from 3.3 percent this year.

“As the macro environment improves, gold investors in developed economies will likely increasingly look to diversify from bullion and into riskier assets,” Andrey Kryuchenkov, an analyst at VTB Capital in London, wrote in a Dec. 29 report. “It will not happen overnight and we still see bullion benefiting from relative dollar weakness next year, continuous official-sector purchases and, most importantly, recovering jewelry demand in India.”

Silver futures for March delivery rose 0.8 percent to $30.227 an ounce on the Comex.

On the New York Mercantile Exchange, platinum futures for April delivery added 1.4 percent to $1,542.40 an ounce, the biggest gain since Nov. 23. Palladium futures for March delivery rose 0.4 percent to $703.35 an ounce.