Gold holds gains as Barclays sees bets on lower prices halting

[SINGAPORE] Gold held an advance as money managers stayed net-short on bullion for a second week, spurring speculation that some investors will close out bets on lower prices.

Bullion for immediate delivery climbed 0.1 per cent to US$1,096.29 at 3:15 pm in Singapore after rising 0.7 per cent on Friday, according to Bloomberg generic pricing. The metal fell to US$1,077.40 on July 24, the lowest level in five years, and has dropped for six weeks in the longest stretch since 2004.

After going bearish for the first time since the US government data begin in 2006, speculators held a net-short position in gold of 11,334 futures and option contracts as of July 28, while long holdings dropped for a fifth week, the longest slide since March, according to Commodity Futures Trading Commission data released three days later. The Federal Reserve signaled last week that borrowing costs will probably rise this year as the labor market improves.

"Despite the price rundown, bearish sentiment remains elevated," Barclays Plc analysts said in a note. "However, this extreme level of positions leaves room for a potential short-covering rally; thus, it can be a bullish risk to gold, at least in the short term."

While policy makers are counting on rising wages to boost the economy and bring inflation closer to their 2 per cent goal, a report on Friday showed wages and salaries rose 0.2 per cent in the second quarter, the smallest in data going back to 1982.

Investors are looking ahead to manufacturing and employment data this week for indications of whether the economy is strong enough to justify the first rate increase since 2006. The Fed's next scheduled announcement on interest rates is Sept. 17.

The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, rose 0.1 per cent on Monday after reaching a two-week low on Friday. The gauge is 18 per cent higher over the past year while gold tumbled 15 per cent.

Investors have lost a lot of money in gold, Jake Klein, executive chairman of Evolution Mining Ltd, said on Monday in a Bloomberg Television interview in Kalgoorlie, Western Australia. The value of exchange-traded products tracking bullion lost US$6 billion last month, the most since September, data compiled by Bloomberg show.

Gold futures for December delivery added 0.1 per cent to US$1,095.60 an ounce on the Comex in New York. Metal of 99.99 per cent purity climbed as much as 1.4 per cent to 220 yuan a gram (US$1,101.95 an ounce) on the Shanghai Gold Exchange and was at 219.54 yuan.

Silver for immediate delivery dropped 0.2 per cent to US$14.7507 an ounce. Platinum fell 0.2 per cent to US$981.73 an ounce, while palladium added 0.3 per cent to US$614 an ounce after declining 1.6 per cent on Friday.

BLOOMBERG