Hedge funds’ bullish bets on gold jump to four-year high
Hedge funds and other large speculators boosted their net-long position in gold.
The gold price wracked up another session win on Thursday, after economic news from the US came in below expectations, signalling ultra-loose monetary policy could be around for longer than expected.
On the Comex division of the New York Mercantile Exchange, gold futures for April delivery – the most active contract – settled at $1,300.50 an ounce, up $5.80 from yesterday’s close.
It was the first time the metal traded above $1,300 since early November. The price of gold is up 8.3% in 2014.
However, traders point out that on a technical basis $1,304 is the key level that could trigger a series of gains. $1,304 an ounce is the 200-day moving average of the gold price and a level not breached in over a year.
Gold’s gains on Thursday, after advancing six sessions in a row, came after US retail sales fell 0.4% in January against an expected 0.2% increase. Consumption makes up around 70% of the US economy and any slowdown bodes ill for GDP growth in the world’s largest economy.
Initial claims for state unemployment benefits also clouded the outlook rising to seasonally adjusted 339,000 against expectations of decline to 330,000.
The poor economic data comes on the heels of two disappointing jobs reports in December and January which have strengthened the hands of supporters of the Fed’s economic stimulus program.
New Fed chair Janet Yellen, in testimony to US lawmakers, told lawmmakers she expects “a great deal of continuity” in the Fed’s approach to monetary policy, but left the door open to hit the breaks on tapering of $65 billion a month asset purchases under its quantitative easing program should the economic outlook deteriorate.
The US central bank, together with the Bank of Japan, the European Central Bank and the Bank of England, has pumped more than $10 trillion of easy money into financial markets since the financial crisis.
This unprecedented monetary expansion has been a massive boon for the gold price. Gold was trading around $830 an ounce when previous chairman Ben Bernanke announced Q1 in November 2008.
Gold and the US dollar usually moves in the opposite directions and gold’s status as a hedge against inflation is also burnished when central banks flood markets with money.
The price of gold slid close to 28% in 2013 – the worst annual performance since 1980 – in anticipation of an early end to the ultra-loose monetary policy. Those fears may have been overblown.
Other positives this year include the metal’s perceived value as a safe have in times of turmoil as emerging market worries replace fears over the eurozone which occupied investors minds in 2012 and 2013.
Strong physical demand from Asia has also underpinned the strength of gold this year with speculation that a purported 500 tonnes bought by the Chinese central bank will be added to this year.
China consumed 1,176 tonnes of gold in 2013, 41% higher than in 2012, according to data released on Monday by the China Gold Association.
Despite onerous new taxes and import restrictions Indian consumption still rose 5% to 987.2 tonnes last year.
Lifting some or all of these restrictions which have been mooted by politicians ahead of general elections on the sub-continent would provide a further boost for the price.
Image of gold pour at Gold Reef City in Johannesburg, South Africa by Dan Brown.
