Hedge funds slash bullish wagers on gold over Trump election win
The precious metal has fallen about 8% from a record high on Oct. 31, with losses accelerating after Trump’s election victory last week.
After consolidating around the $1,200 an ounce level the price of gold jumped following a telegraphed interest rate hike by the US Federal Reserve yesterday, only the third upward adjustment in a decade.
The metal built on those gains on Thursday with April futures contracts on the Comex market in New York touching a high of $1,234.00 at the open, up 2.8% from yesterday’s settlement level. Gold has gained more than $80 an ounce so far this year.
Fed officials signalled only two more rate hikes this year, below what most economist had been predicting, which sent US government bond yields lower and hurt the dollar.
Because gold is not yield-producing and investors have to rely on price appreciation for returns, the metal has a strong inverse correlation to inflation adjusted interest rates.
The rate of price growth has nearly doubled in the twelve months to end January this year to 1.99%, bang on the central bank’s target rate. With the Fed’s key rate at 0.75–1.00% real short-term rates in the world’s biggest economy remains in negative territory.
Chair Janet Yellen also said the Fed was willing to tolerate inflation temporarily overshooting this goal and the bank intended to keep its policy accommodative for “some time.” Gold traditionally is viewed as a hedge against inflation.
Source: Capital Economics
A new report by FocusEconomics compiling views on the gold market of global analysts and economists paint a mixed picture on the prospects for gold for the rest of the year
According to the Barcelona-based firm’s March report which covers analysis by 30 investment banks and research houses including the likes of Deutsche Bank, JP Morgan, Macquarie, CPM Group and others, gold is expected to remain flat towards the end of 2017.
Analysts’ consensus forecast is that prices will average $1,200 an ounce in the final quarter of 2017. For Q4, the maximum forecast is for gold to average $1,375; the view of Australia’s ANZ bank.
Capital Economics is the most bearish – the UK-HQ’ed research firm sees gold dropping to $1,070 in the final quarter of this year. That would come close to the six year lows gold traded at in December 2015.
Investors in gold mining stocks were also taking a cautious view of gold’s rebound with a mixed performance for top producers on the New York Stock Exchange.
World number one Barrick Gold was down slightly in afternoon trade following a late surge yesterday. The $19 billion Toronto-based company sports 19% gains so far this year making it the best performing major gold mining stock of 2017.
Newmont, the second largest gold produer in terms of output, lost 3.5% giving up all its post-Fed gains. Vancouver’s Goldcorp was trading flat and Johannesburg-based AngloGold Ashanti added nearly 1% to its Thursday gains.
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