Gold Lovers Bet Party Isn't Over After 17% First-Quarter Surge

www.bloomberg.com

• Money managers increase net-long holdings by 2.1%, CFTC says
• Bullion futures post biggest quarterly gain since 1986

Even after a lackluster March, money managers are betting the best-performing commodity last quarter still has further to run.

While gold futures have dipped from a 13-month high, hedge funds are the most bullish since January 2015. The precious metal posted its biggest quarterly advance in three decades as turbulent financial markets and ebbing global economic growth boosted demand for it as a haven.

Federal Reserve Chair Janet Yellen said last week that U.S. central bankers should “proceed cautiously” on plans to raise interest rates because of risks from the global economy. London-based research firm Metals Focus Ltd. expects investors to pour more money into the metal as policy makers keep rates low to spur growth. Higher prices are lifting shares of producers including Newmont Mining Corp. and Freeport-McMoRan Inc.

“Investment demand is there on the bullion end and obviously on the equity end as well,” Maria Smirnova, a portfolio manager at Sprott Asset Management in Toronto, which oversees C$8.5 billion ($6.5 billion). “There’s a sea change going on around the world with the realizations that the monetary policies have not been as effective as central banks had hoped. We don’t see inflation. Rates are declining. That’s positive for gold right now.”

Gold Bets

Hedge funds boosted net-long holdings in gold futures and options by 2.1 percent to 164,946 contracts in the week ended March 29, according to U.S. Commodity Futures Trading Commission data released three days later. Money managers have increased bullish wagers in three of the past four weeks.

Gold futures traded at $1,219.90 an ounce on the Comex in New York on Monday, after touching a high on March 11 of $1,287.80. Prices advanced 17 percent in the first quarter, the biggest such gain since 1986. The metal fell for three straight years through 2015.

Concerns that global economic malaise will spill over into the U.S. have damped odds of a rate increase by the Fed. Chances policy makers will make a move by July have dropped to 36 percent, from 79 percent at the beginning of the year, based on Fed-fund futures data. Lower rates are a boon for gold, which becomes more competitive against interest-bearing assets.

Also helping bullion is a stumble in the dollar, which increases the appeal of the metal as an alternative asset. The greenback in March posted its biggest monthly loss since 2010 against a basket of 10 currencies.

“The fundamentals, particularly easy-money policies globally, are very positive,” said Adrian Day, president of Adrian Day Asset Management in Annapolis, Maryland, which oversees $146 million. “The dollar seems to have peaked, at least for the short-term.”

With data last week showing few signs that the global slowdown is spreading to the U.S., some investors may be reassessing the outlook. U.S. jobs data Friday showed resilient hiring and a pickup in wages in March, while a separate report showed a surge in orders that signals American factories are emerging from their worst slump since the last recession.

Bullion futures barely eked out a gain last month, and the metal has failed to post a weekly increase since early March. At the same time, global equities capped their biggest monthly increase since October.

“We’ve kind of reached an apex of speculation,” Rob Haworth, senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees $125 billion, said in a telephone interview. “As I look forward, the odds of a Fed rate increase are probably higher than where the market has them priced right now. That’s going to be a real headwind here for gold.”