Gold May Rise as Alternative Asset to U.S. Stocks, Survey Shows
Gold May Rise as Alternative Asset to U.S. Stocks, Survey Shows
May 2 (Bloomberg) -- Gold may rise this week on speculation investors will buy the metal as an alternative to slumping U.S. equities, a Bloomberg survey showed.
Twenty-four of 50 traders, investors and analysts surveyed from Melbourne to New York April 28 and April 29 advised buying gold, which rose 50 cents last week to $436.10 an ounce on the Comex division of the New York Mercantile Exchange. Eighteen recommended selling the metal, and eight were neutral.
Gold climbed 13 percent in the past year, reaching a 16-year high of $458.70 in December, as a declining dollar sent investors looking for alternatives to U.S. assets. Newmont Mining Corp. President Pierre Lassonde said demand for gold is so strong that metal refiners in Switzerland and Australia are ``working 24- seven putting product out.''
``People are very keen to use gold as an alternative currency, an alternative asset,'' Lassonde, 58, said in an April 27 telephone interview from the company's headquarters in Denver. Newmont is the world's largest gold producer.
Gold's 0.1 percent gain in New York last week was anticipated by a majority of analysts surveyed April 21 and April 22, who predicted a gain. Bloomberg's survey accurately forecast the direction of gold prices in 31 of 53 weeks, or 58 percent of the time. Gold rose 1.2 percent last month, and is up 13 percent from a year ago.
Hedge-fund managers and other large speculators increased their net-long position in Comex gold futures by 20 percent to 137,777 contracts in the week ended April 26, the Commodity Futures Trading Commission said April 29. A futures contract is an obligation to buy or sell a commodity at a set price by a specific date.
Link to Dollar
The rally in gold over the past year has largely been linked to a drop in the dollar against the euro. Gold rose last week even as the dollar gained against the euro.
``People are buying gold to preserve capital,'' said Ian MacDonald, managing director of precious metals trading in New York at International Assets Holding Corp., an Altamonte Springs, Florida-based brokerage and asset-management company. ``If you look at the fundamentals of the euro, the yen and the dollar, none of them are good.''
Gold has moved in line with the euro's change against the dollar, at a correlation coefficient of 0.66 this year. The maximum reading is 1. The coefficient measures the degree in which two variables move in unison. As much as 95 percent of gold's price is inversely correlated to the dollar, Newmont's Lassonde said.
Regain Appeal
``Gold will regain its earlier appeal as the dollar rally is temporary and the bubble may burst in the next few weeks,'' said Jay Mehta, managing director of Mumbai-based Maximus Commodities.
The appeal of precious metals also has improved as U.S. stocks declined because of concern for slowing U.S. economic growth and inflation, said Michael Martin, a broker at stock and bond brokerage company R.F. Lafferty & Co. in New York.
``People can't figure out what to do in the stock market, and they can't figure out bonds,'' Martin said. ``People are very nervous, and that's a good environment for gold.''
The Dow Jones Industrial Average, up 0.3 percent last week, fell 3 percent last month and is down 0.8 percent over the past year. The 10-year U.S. Treasury note's yield has dropped half a percentage point from its high of 4.69 percent this year in March even as the Federal Reserve has raised interest rates.
`Bullish for Gold'
The Federal Reserve tomorrow is expected to raise its target for overnight bank lending to 3 percent, below the 3.1 percent annual U.S. inflation rate in March, based on a Bloomberg survey of 93 economists.
``Real short-term interest rates are still low to negative, and that traditionally has been bullish for gold,'' said Michael Cuggino, who manages $350 million at San Francisco-based Pacific Heights Asset Management LLC, including about 115,000 ounces of gold bars stored in bank vaults.
Newmont's Lassonde predicts gold will trade between $425 and $475 an ounce this year.
``For the first time in three years, we're going to see the gold price going up at the same time as we might see the dollar firming up, because of the perceived rise in interest rates,'' Lassonde said. Gold may rise on its own, either as investors seek a hedge against declines in stock and bond prices or as gold takes on a role as a currency on its own, he said.
Stocks are trading at a historically high ratio to gold, at 23 to 1, based on the Dow Jones Industrial Average at about 10,200 and gold at $436, Lassonde said. Over the past 100 years, the ratio peaked at 42.35 to 1 in August 1999 and went to as low as 1.33 to 1 in 1980, when gold reached $873, he said.
`Room To Go Up'
``When you look back in history, it's quite interesting, the ratio always comes back,'' Lassonde said. ``You could have the Dow coming down appreciably from here, but it still leaves an awful lot of room for gold to go up.''
The economic slowdown that is hurting stocks may also hurt gold, said Thomas Au, an analyst at financial consulting company R.W. Wentworth in New York.
Slower growth reduces investor concern inflation will accelerate, making gold less appealing as an alternative, said Au, who has correctly predicted the weekly direction of gold prices 61 percent of the time in the Bloomberg survey. He expects gold prices to fall this week, the first decline he has predicted since the survey began last year.
To contact the reporter on this story: Claudia Carpenter in New York at ccarpenter2@bloomberg.net.
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