https://www.engineeringnews.co.za

With gold prices stuck in ‘purgatory,’ hedge funds pull out

With gold prices stuck in ‘purgatory,’ hedge funds pull out

Photo by Bloomberg

19th December 2016

By: Bloomberg

  

Font size: - +

NEW YORK – Gold is in the doldrums.

Prices have fallen for six straight weeks, the worst streak in a year, as prospects for higher US borrowing costs damped demand for gold, a for non-interest-bearing asset. Investors do not seem too optimistic about the outlook for 2017. Hedge funds cut their bets on a rally to the lowest since February, while outflows are ramping up from exchange-traded funds.

After the metal’s best first half since 1979, bullion has been losing its luster as US equities rallied to records. A stronger dollar and rising bond yields have also crimped demand for the alternative asset. Federal Reserve officials last week signaled a steeper path for interest rates in 2017, after raising borrowing costs for the first time this year. While money managers have cut their wagers on a gold rally for five consecutive weeks, their net-position is still more than double what it was at the end of January.

“People are still too optimistic on gold,” said John LaForge, the Sarasota, Florida-based head of real assets strategy at Wells Fargo Investment Institute. “We’re in a price purgatory for a lot of commodities, including gold. You’re going to have a lot of investors and strategists like myself reduce their price forecasts.”

BULL WAGERS
The net-long position, or bets on price gains, for gold declined 15% to 68 905 futures and options contracts in the week ended December 13, according to US Commodity Futures Trading Commission data released three days later. The holdings are down 61% over the five-week slump.

On the Comex in New York, gold futures rose 0.3% to $1 140.90/oz on Monday, after a 2.1%  loss last week. Prices touched $1 124.30/oz on December. 15, the lowest since February.

Earlier this year, bullish sentiment for gold was partly driven by political uncertainty as Britain voted to exit the European Union and amid a heated US election cycle. Just before Americans took to the polls on November 8, gold was trading near a one-month high. Since then, prices have slumped about 11% as there has been relative calm in the election aftermath and as equities rallied on president-elect Donald Trump’s pro-business policies.

Investors are positioning for more stability. In the month through December 15, they pulled $6.2-billion from exchange traded funds (ETFs) tracking precious metals -- the largest withdrawal across asset classes, data compiled by Bloomberg show. The biggest casualty was SPDR Gold Shares, the top fund backed by bullion. Holdings in global gold ETFs dropped for 26 straight sessions through Friday, the longest slide since 2013.

While assets in the gold ETFs are still up for the year, Goldman Sachs Group estimates that the “vast bulk” of the holdings are losing money at current prices, analysts said in a November 21 note. If investors were to withdraw from even half of those money-losing holdings, it would spark a $60 sell-off in prices, the bank said.

CHINA, INDIA
Even the physical market doesn’t look promising. China in November refrained from adding to its gold reserves for the first time in six months, according to People’s Bank of China data compiled by Bloomberg. Imports to India are down 43% in the first 11 months of the year compared with 2015, provisional ministry data compiled by Bloomberg show. The countries are the world’s top bullion buyers.

Still, political uncertainty remains, and that could spark a rebound in gold. Trump’s presidency carries a lot of unknowns, including how his trade policies could impact the U.S. economy. European Central Bank president Mario Draghi has warned that the combination of rising global interest rates and explosive politics could expose the area’s economy to weakness, and Swiss National Bank policy makers last week cited structural problems in a number of advanced economies that could “negatively affect the outlook.”

“We are starting to see people say, well perhaps gold is a contrarian buy because political risks haven’t gone away,” said Frances Hudson, an Edinburgh-based global thematic strategist at Standard Life Investments, which oversees $360-billion.

Edited by Bloomberg

Comments

Showroom

Showroom image
Alcohol Breathalysers

Supplier & Distributor of the Widest Range of Accurate & Easy-to-Use Alcohol Breathalysers

VISIT SHOWROOM 
Booyco Electronics
Booyco Electronics

Booyco Electronics, South African pioneer of Proximity Detection Systems, offers safety solutions for underground and surface mining, quarrying,...

VISIT SHOWROOM 

Latest Multimedia

sponsored by

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION







sq:0.09 0.146s - 156pq - 2rq
Subscribe Now