Gold Rallying to $1,500 as Soros's Bubble Inflates

Gold may rise as high as $1,500 next year according to the median in a Bloomberg survey of 29 analysts, traders and investors. Photographer: Chris Ratcliffe/Bloomberg

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Aug. 30 (Bloomberg) -- Frank McGhee, head dealer at Integrated Brokerage Services LLC, talks with Bloomberg’s Julie Hyman about the outlook for gold prices and the prospects for the U.S. economy. Gold futures fluctuated today on speculation that a decline in equities will boost demand for the metal as a haven. (Source: Bloomberg)

An employee prepares gold ingots for shipping at the Argor-Heraeus SA gold producing and refining plant in Mendrisio, Switzerland. Photographer: Adrian Moser/Bloomberg

Gold bars are arranged for a photograph at Tanaka Kikinzoku Jewelry K. K.'s store in Tokyo, Sept. 30, 2008. Photographer: Haruyoshi Yamaguchi/Bloomberg News

John A. Paulson, president of Paulson & Co., attends the UJA Federation of New York's annual Wall Street Dinner in New York, Dec. 16, 2009. Photographer: Rick Maiman/Bloomberg

George Soros, chairman and founder of Soros Fund Management LLC, speaks at an open discussion at the University of Hong Kong in Hong Kong, on Feb. 3, 2010. Photographer: Jerome Favre/Bloomberg

Investors are accumulating enough bullion to fill Switzerland’s vaults twice over as gold’s most- accurate forecasters say the longest rally in at least nine decades has further to go no matter what the economy holds.

Analysts raised their 2011 forecasts more than for any other precious metal the past two months, predicting a 10th annual advance, data compiled by Bloomberg show. The most widely held option on gold futures traded in New York is for $1,500 an ounce by December, or 18 percent more than the record $1,266.50 reached June 21. Holdings through bullion-backed exchange-traded products are already at more than 2,075 metric tons, within 0.1 percent of the all-time high.

“Either a swift economic recovery or further dismal economic performance should bring new buyers into the market,” said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt who was the most accurate forecaster in the first quarter and expects the metal to rise as high as $1,400 next year. “A stronger economy would create more jewelry demand. If the economy stays weak or gets worse, then investors will be looking for a safe haven.”

Investors added to their gold holdings through ETPs for three consecutive weeks, reflecting demand for assets typically favored in times of financial stress. Two-year Treasury yields fell to a record low of 0.4542 percent on Aug. 24 and the yen reached a 15-year high against the dollar the same day. Pacific Investment Management Co., Deutsche Bank AG and Citigroup Inc. have announced or are offering funds or traded instruments designed to guard against sudden market declines.

Swiss Reserves

Buyers accumulated almost 278 tons of gold in 2010 across 10 ETPs tracked by Bloomberg, worth $10.4 billion at this year’s average price. Total holdings are almost twice Switzerland’s official reserves of 1,040 tons, data compiled by the World Gold Council show. ETP holdings reached a record 2,078 tons July 19, data compiled by Bloomberg show.

One of the biggest buyers has been Soros Fund Management LLC, which oversees about $25 billion. George Soros, who made $1 billion breaking the Bank of England’s defense of the pound in 1992, described gold as “the ultimate asset bubble” at the World Economic Forum’s January meeting in Davos, Switzerland. Buying at the start of a bubble is “rational,” he said.

Soros Fund Management sold 341,250 shares of the SPDR Gold Trust, the largest ETP backed by bullion, in the second quarter, according to an Aug. 16 Securities and Exchange Commission filing. That still left a holding of 5.24 million shares, equal to almost 16 tons. Soros declined to comment on the change, through a spokesman.

Accurate Forecasters

Gold may rise as high as $1,500 next year, 21 percent more than the $1,240 traded at 1:45 p.m. in London, according to the median in a Bloomberg survey of 29 analysts, traders and investors. Dan Brebner, an analyst at Deutsche Bank in London who is the most accurate forecaster so far this year, says the metal may reach $1,550.

Bullion gained 13 percent since January, beating an 8.4 percent return on Treasuries, an 8 percent decline in the MSCI World Index of shares and the 10 percent slump in the S&P GSCI Total Return Index of 24 raw materials.

Investors are concerned the recovery is weakening. Sales of new U.S. homes fell to an all-time low in July, the Commerce Department said Aug. 25. The U.S. economy grew at a 1.6 percent annual rate in the second quarter, less than previously calculated, the department said Aug. 27. U.S. growth will slow to 2.8 percent next year, compared with 3 percent in 2010, according to the median of as many as 69 economists’ forecasts compiled by Bloomberg.

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