Share

Gold back in fashion after global equity decline

New York - The $15 trillion rout in global equity markets since May is reawakening the lure of gold for investors seeking safety.

Hedge funds more than doubled their net-long position in bullion last week, just three weeks after they were the most- bearish ever. Investor holdings of gold through exchange-traded products are expanding at the fastest pace in a year, and the value of the ETPs has jumped by $3bn in 2016.

Bullion has seen a revival of its appeal as a haven after being mainly ignored last year in the face of the Paris terror attacks in November and the Greek bailout negotiations in July. This time around, concerns about global markets will support the metal, Citigroup Inc. analysts led by Ed Morse said last week as they raised their 2016 price forecast.

“People have become complacent about risks, whether it’s macroeconomic and geopolitical,” said George Milling-Stanley, the Boston-based head of gold investments at State Street Global Advisors, which oversees $2.4trn.

“What’s out of fashion may be coming back. That atmosphere of people feeling completely calm and untroubled, I think, is starting to go away. Gold is a very good risk-off trade, and I think people are starting to look very, very carefully at the risky positions that they have on a number of other markets.”

Wagers double

Futures gained 3.4% in January to $1 096.30 an ounce on the Comex in New York, heading for the biggest monthly gain since August. The net-long position in gold futures and options reached 1 934 contracts in the week ended January 19, according to US Commodity Futures Trading Commission data released three days later.

That’s up from 902 a week earlier and compares with a record net-short holding of 24 263 held at the end of last year.

Investors poured $926m into ETFs backed by precious metals so far in January, the latest data compiled by Bloomberg show. That’s on pace for the biggest monthly expansion in a year. Holdings in global gold ETPs reached almost 1 500 metric tons last week. That’s the highest since November.

Gold fell 10% last year as investors awaited the first increase in benchmark interest rate by the Federal Reserve since 2006, which finally came in December.

Fed Bank of Boston President Eric Rosengren said this month that the central bank’s projected path for more policy tightening is at risk, citing falling estimates for US economic growth. Higher rates curb the allure of gold as an alternative investment because it doesn’t pay yields.

The attraction to gold this month “could partly have to do with re-balancing investors’ portfolio,” said Kevin Caron, a Florham Park, New Jersey-based market strategist and portfolio manager who helps oversee $180bn at Stifel Nicolaus & Co. “An entry price here nearer to $1 000 than $2 000 makes a lot more sense.”

In vogue

Gold is climbing on concerns about further contagion from China, volatile stock markets and tensions in the Middle East, Citigroup said in a January 19 report. The bank raised its 2016 outlook by 7.5% to $1 070. The turmoil will support prices this quarter, before a stronger dollar ends the rally later in the year, the analysts said.

Gold reached a five-year low in December as the dollar strengthened and US inflation stayed stagnant, cutting demand for the metal as a store of value.

The cost of living in the US unexpectedly dropped in December, led by a slump in commodities. China’s slowdown is combining with lower oil prices and competitive currency devaluations to increase the risk of deflation around the world, billionaire investor George Soros said in a Bloomberg Television interview last week.

“You’re getting a short-term bounce based on the sell-off in oil and stocks, but the underlying fundamentals, the inflation expectations haven’t changed,” said Rob Haworth, a Seattle-based senior investment strategist at U.S. Bank Wealth Management, which oversees $128bn of assets.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.99
-0.3%
Rand - Pound
24.14
-0.1%
Rand - Euro
20.64
-0.2%
Rand - Aus dollar
12.38
+0.3%
Rand - Yen
0.13
+0.5%
Platinum
913.65
-1.1%
Palladium
1,016.50
-4.6%
Gold
2,158.37
-0.1%
Silver
25.03
-0.1%
Brent Crude
86.89
+1.8%
Top 40
66,252
0.0%
All Share
72,431
0.0%
Resource 10
53,317
0.0%
Industrial 25
100,473
0.0%
Financial 15
16,622
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders