Eighteen of 34 traders, investors and analysts surveyed by Bloomberg from Sydney to Chicago on Oct. 12 and Oct. 13 advised buying gold, which rose 2.8 percent last week to $592.70 an ounce in New York. The gain was the biggest since July. Eleven people said to sell the metal, and five were neutral.
The Fed hasn't raised rates since June 29, which may help gold recover from its biggest quarterly decline in more than two years. U.S. new-house prices will fall this year for the first time since 1991 because of a property glut and high loan costs after 17 straight interest-rate increases by the Fed since 2004, the National Association of Realtors said.
``Rate hikes have bolstered the U.S. economy as far as they can,'' said A.C. Moore, who manages the $500 million Dunvegan Growth fund in Santa Barbara, California, and bought more gold last week. ``The Fed is walking a very thin line. With inflation still mounting, it's tantamount to a rate cut. That's going to be a positive for gold.''
Gold futures for December delivery rose $15.90 last week on the Comex division of the New York Mercantile Exchange. The gain surprised analysts surveyed Oct. 5 and Oct. 6 who had expected a decline. Bloomberg's survey has forecast the direction of prices accurately in 77 of 129 weeks, or 60 percent of the time.
Dollar vs Gold
Gold and the dollar generally move in opposite directions. Gold has gained every year since 2001, and has more that doubled in the past five years. The dollar index rose last year after three consecutive annual declines, as the Fed boosted rates to combat inflation.
The dollar is little changed against a group of six major currencies since the Fed first began raising rates in June 2004, while gold has jumped 47 percent. The dollar index is down 4.4 percent this year, compared with a 14 percent gain in gold.
``All the arguments that took gold from $250 to $700 remain the same,'' said George Milling-Stanley, New York-based manager of market analysis at the producer-funded World Gold Council. ``The dollar seems to be in a secular downward trend. That's been good for gold and we continue to think it'll be good for gold.''
Some investors are betting a weaker dollar will boost gold prices and are increasing their holdings of bullion as a long- term investment, even after gold has declined 19 percent from a 26-year high of $732 on May 12.
Gold Fund
The amount of metal held by the StreetTracks Gold Trust, an exchange-traded fund linked to the price of gold, has climbed above 390 tons in the past month, the highest since its November 2004 introduction.
The value of the fund has since fallen to $7.3 billion from a record $8.2 billion reached in May. Still, more gold is being stored in the trust to issue shares, a signal that investment demand remains strong, Milling-Stanley said. The ETF began trading on the Singapore Exchange on Oct. 11.
``It tells you that people who are buying the ETF are taking a long-term view and making a long-term strategic allocation to gold,'' Milling-Stanley said.
A rally in gold prices may attract speculative money that spurred gains during the first half of the year, some traders said. Prices dropped 1.9 percent in the third quarter, the first decline in six quarters and the biggest since the second quarter of 2004.
Buying Will Resume
``Once gold starts rallying, you're going to get the momentum guys coming back in,'' said Billy Flahive, gold trader and partner at Eagle Futures Inc. in New York.
Hedge-fund managers and other large speculators decreased their net-long position in New York gold futures in the week ended Oct. 10, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 62,449 contracts on the Comex, down 10 percent from a week earlier, the Washington-based commission said Oct. 13.
Gold prices may mirror movements in oil, analysts said. Gold futures reached a record $873 an ounce in January 1980 after oil costs doubled in a year, sparking a surge in inflation.
``Prices could easily go past the $600 level'' should the Organization of Petroleum Exporting Countries reduce production to raise oil prices, said Alex Mathews, head of research at Geojit Financial Services Ltd. in Mumbai. OPEC meets Oct. 19 in Qatar.
Gold may rise as physical demand picks up. Jewelers, who accounted for 73 percent of purchases last year, are becoming accustomed to buying gold as high as $580, some analysts said. Jewelers often stock up in the fourth quarter for the year-end holiday season. Gold has gained in every fourth quarter since 2001.
``Physical demand remains good at the lower end of the $570 to $580 range,'' said Peter Tse, Hong-Kong based chief precious metals trader at ScotiaMocatta, the bullion unit of the Bank of Nova Scotia.
