Hedge funds slash bullish wagers on gold over Trump election win
Hedge funds and other large speculators boosted net-long positions by 11% to 197,362 as of Nov. 12, the lowest in 14 weeks.
The latest State of the Market report from SNL Metals & Mining reveals that while the minerals exploration sector recorded lower drilling activity, funds raised by the mining sector saw a near three-fold increase from the (restated) US$2.2 billion raised during the September quarter, to US$6.2 billion in the three months to the end of December.
Last year saw significant upheaval for exploration and mining companies. With metal prices falling and funding drying up, explorers were focused on survival, and producers on cost cutting, productivity, and on better-value deals. The March quarter saw a sharp decline in mergers and acquisitions, followed in the June period by even lower commodity prices and a collapse in financing. The September quarter signalled a return of some investor confidence to the sector, but not for explorers.
Chris Hinde, Reports Director at SNL Metals & Mining, notes; “These broad trends have continued in the three months to end-December 2013. There is increased optimism, but the exploration scene remains depressed. Drilling activity fell again (except for copper), with an associated decline in new resources and reserves announced during the quarter.”
Taken overall, the funds raised and resultant improvement in cash holdings amongst producers suggests that a more bullish time may lie ahead for the industry. Not that a continued recovery in the global economy is certain. In mid-January the International Monetary Fund warned the world’s leading economies against withdrawing their financial stimulus too soon, and expressed concern about the threat of deflation in the Eurozone.
As the State of the Market report highlights; the outlook for economic growth in China is also uncertain. The country’s economy grew 7.7 per cent (year-on-year) in the December quarter, which was slightly ahead of the recent consensus forecast, but down from the 7.8 per cent annualised growth in the September quarter. Also, monthly figures showed that industrial output, fixed investment and retail spending all weakened in December.
Nevertheless, dealmakers are suggesting that 2014 has all the ingredients to be a vintage year: low interest rates, macroeconomic stability, high levels of cash on corporate balance sheets and a banking sector eager to lend. With excess capacity for the supply of many metals, the mining industry might not benefit to the same extent as the general economy. However, the sector’s turn will come and, in the meantime, there is significant value to be had from the acquisition of development properties.
Summarising, Dr. Hinde states; “For all the somewhat-gloomy sentiment about the current rates of economic growth, long-term metals consumption is linked fundamentally to per capita wealth and population‒ and both are growing. The world is still getting richer. Within a couple of decades, a world that is predominantly poor will be mostly middle class, and consuming more metal. This augurs well for the long-term future of the industry as a whole.”
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