Bullish gold bets rise as physical product holdings increase

The optimism that gold traders have surrounding the future prices for gold have risen lately, and this has happened as the amount of physical gold held by exchange-traded products (ETPs) recently increased to a record level.

Rising bullish wagers
Data provided by the U.S. Commodity Futures Trading Commission indicates that the bullish gold bets held by hedge funds have risen to their highest point in seven months, according to Bloomberg. In a recent survey conducted by the media outlet, 20 out of 32 analysts predicted that prices for the metal will go up during the week beginning on October 7.

This strong sentiment exists at a time when gold holdings of ETPs has risen to an all-time high after the investment vehicles bought 85.4 metric tons in September, the media outlet reports. This monthly purchase amount was the largest since July 2011.

Central bank action
The recent shift in market focus toward gold comes after central banks in various jurisdictions announced plans to provide stimulus in the recent past. The Federal Reserve Bank recently stated that it would purchase $40 billion worth of mortgage-based debt every month for as long as was needed to jumpstart the economy. The central bank also revealed plans to keep interest rates low through mid-2015.

In addition, the Bank of Japan stated that it would increase the amount of money contained in a fund used to assist lending institutions, and the European Central Bank has stated that it will purchase the bonds of troubled euro zone nations in order to stabilize borrowing costs in the region.

Inflation expectations
A growing number of individuals are going to anticipate continued price increases in future years as a result of the debt outstanding in the American financial system as well as the quantitative easing efforts, Frederique Dubrion, the Geneva- based president and chief investment officer of asset manager Blue Star Advisors SA, told the news source.

He emphasized that federal governments have the ability to print as much fiat currency as they want, but gold cannot be printed, and referred to gold as “a hard currency,” the media outlet reports.

While Dubrion cites debt and quantitative easing as sources for the future prices of gold, the metal reached its all time high of more than $1,920 per ounce in September 2011, as markets were impacted by euro zone turmoil and the U.S. coming close to defaulting on its debt. 

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