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Hedge funds bought gold as dollar sank

Hedge funds bought gold as dollar sank

Tue Apr 25 2017


There’s no stopping the gold bulls. Hedge funds increased their wagers on a gold rally to the highest since November, betting that this year’s 12% advance has more to go.


Gold is shining bright as the dollar trades near the lowest since November, lifting the appeal of alternative assets. At the same time, escalating tensions between the US and North Korea have boosted demand for a haven, while delays in implementation for President Donald Trump’s campaign promises to cut taxes and pursue a pro-growth agenda are clouding the outlook for earnings. “There’s an appetite for storehouses of wealth (now),” said Peter Sorrentino, the Dallas-based chief investment officer of Comerica Asset Management Group, which oversees $43 billion, including gold ETFs (exchange-traded funds). “Rather than run the risk of having your dollars eroded on a relative basis, you can use gold as a life raft to sort of avoid a sinking ship.”

Bullish Wagers


Money managers raised their gold net-long position, or the difference between bets on a price increase and wagers on a decline, by 15% to 161,263 futures and options contracts in the week ended 18 April, according to US Commodity Futures Trading Commission data.


Gold futures climbed 3% in April to $1,289.10 an ounce as of 21 April, on the Comex in New York. Prices are heading for their third monthly gain this year.


Standard Chartered Plc and Bank of America Merrill Lynch say the metal is headed towards $1,300, while Societe Generale SA recommends investors take long positions in the metal.

Coin Buying


Events in Europe have also been a boon for gold. There are still doubts over where the UK’s post-Brexit economy is heading. In France, a presidential election run-off is scheduled for 7 May and candidates are stressing their commitment to fight terrorism after the killing of a policeman on the Champs-Elysees in Paris. Demand for gold coins is surging in the nation, with CoinInvest selling more than 1,000 ounces on 21 April. That’s up from typical sales of 200 to 300 ounces, according to chief executive officer Daniel Marburger.


Open interest in gold futures has rebounded to the highest since January, while limited price swings are proving the metal’s worth as a haven as investors seek stability.

On the down side


Still, gold’s appeal could be curbed amid softening seasonal demand in India, and as the market may be underestimating the impact of higher US interest rates, Tom Kendall, head of precious metals sales at ICBC Standard Bank, said in a report 21 April. The prospect of higher borrowing costs remain a headwind because it makes the metal less competitive against interest-bearing instruments like bonds. The Federal Reserve appears on course to raise interest rates twice more this year and officials have signalled they remain confident in their forecast for growth of around 2% despite a series of weak first-quarter reports. “It’s really the dynamic between interest rates and the price of gold that explains the issue” against owning gold, Mark Heppenstall, Horsham, Pennsylvania-based chief investment officer of Penn Mutual Asset Management, which oversees $22 billion.


Source: Bloomberg