Hedge funds’ bullish bets on gold jump to four-year high
Hedge funds and other large speculators boosted their net-long position in gold.
Gold on Monday continued to build on recent gains as sagging equity markets, a fresh slide in the price of oil and doubts about the strength of the US economy saw investors piling into safe haven assets.
In afternoon trade on the Comex division of the New York Mercantile Exchange gold for February delivery was changing hands for $1,235.60 an ounce, up $19.50 or 1.6% from Friday’s close.
Gold is now trading at its highest since October 22 and has jumped more than 4% jump so far this year. Gold hit a near four-year low of $1,143 early November.
Gold’s strong performance came after another weak day on equity markets as investors digest Friday’s jobs report in the US. The headline numbers for December were better than expected making 2014 the best year in terms of job creation since 1999.
But average hourly wages declined during the month and for the year rose a measly 1.7% because most of the new jobs were in the low-paying retail and hospitality sectors and temporary in nature. With wages barely keeping up with inflation expectations for consumer spending which makes up more than 70% of the US economy have been pared.
Interest rates in the US may now only be raised towards the end of this year rather than during the summer providing a boost to gold which has a strong inverse relationship to market rates and bond yields.
Likewise on Monday, the US dollar retreated, albeit slightly, from 12-year highs against major currencies hit last weak. The US currency remains nearly 14% stronger over the past year. Gold and the dollar usually move in opposite directions.
Crude oil’s slide, while on balance positive for global economic growth, is raising concerns because any disorderly decline could create chaos in already unstable areas of the world including the Middle-East, Russia, Nigeria, Libya and Venezuela.
On Monday oil hit fresh lows with US benchmark West Texas Intermediate dipping as low as $45.88 a barrel, down 4.5% on the day. Oil has lost more than 13% of its value just since the start of the year after sliding 46% in 2014.
On top of oil market uncertainty, trouble in the eurozone and emerging market debt problems brought on by the strong dollar, is enhancing gold allure as a safe have asset.
Last year emerging markets issued nearly $280 billion in US denominated debt and falling currencies are making servicing total debts of more than $1 trillion increasingly difficult.
