Friday, July 12, 2013

Institutional gold sentiment improves

Money managers on Wall Street are also beginning to have a closer look at gold after its record drop in June.  Hedge funds increased their gold purchases as signs of an improving economy drove prices lower in the longest slump since April.  According to CFTC data, money managers increased their net-long positions in gold by 9.9 percent to 34,301 futures and options contracts as of July 2. By contrast, holdings of short contracts climbed 1.4 percent to 78,148, to the second-highest on record. 

Meanwhile, the hedge fund Paulson & Co. reiterated its commitment to investing in bullion and stocks of gold producers to hedge against currency debasement as global central banks pump money into the economy, according to a Bloomberg report.  “Investing in the firm’s gold funds offers the 'potential for outsized returns' if investors have a long-term view,” according to a copy of a July 3 letter to investors obtained by Bloomberg News.  Fund manager John Paulson is among a handful of respected institutional-sized investors who are turning bullish on the yellow metal after its 13 percent drop in the past three weeks.

Holdings in global exchange-traded products backed by gold are down 24 percent this year and below 2,000 tons for the first time since 2010, according to Bloomberg.  This helped erase some $61.3 billion in the value of ETF assets.  Paulson is the largest holder in the SPDR Gold Trust, the largest bullion-backed ETF.  Total outflows from commodity funds were $834 million in the week ended July 3, according to Cameron Brandt, the director of research for EPFR Global, which tracks money flows.  Investors withdrew $636 million from gold funds, according to EPFR.  Thus the retail investing public has shied away from commitments in gold even as the “smart money” increases its bullish bets in the near term.