Archive for April, 2016

April 1, 2016

Gold’s Gain Is Biggest in Decades

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A worker tends a furnace filled with molten gold at a Congolese mine. Gold prices leapt 16% in the first three months of 2016. Photo: Simon Dawson/Bloomberg News By Ira Iosdbashvili

Wall Street Journal

http://www.wsj.com/articles/gold-posts-biggest-quarterly-gain-in-decades-1459463809

Gold prices notched their largest quarterly gain in three decades, showing that worries about the markets and economy continue despite a six-week-long rally in stocks, bonds and commodities.

Gold prices rose 16.5% in the first three months of the year, the biggest leap since 1986. Holdings at SPDR Gold Shares, the world’s largest gold-focused exchange-traded fund, are approaching their highest level since December 2013, while traders are placing more bets on rising prices.

The rally is a rare bit of good news for a metal that has been in retreat for much of the past five years, a period when U.S. economic activity picked up and the dollar surged. Even so, many investors remain skeptical that gold will go much higher unless the global outlook dims considerably.

“This is one of the most surprising gold rallies I have ever seen,” said Ira Epstein, a strategist at the Linn Group who has been trading gold for 40 years.

Net bets on higher gold prices by hedge funds and other speculative investors stood at 161,610 contracts in the week ending March 22, their highest level since February 2015, data from the Commodity Futures Trading Commission showed.

Jeffrey Gundlach, who runs Double Line Capital LP, said in January that gold could rise as high as $1,400 a troy ounce this year. He repeated the call again in March, but said he had become more nervous about the metal, given the magnitude of its recent rally.

Hedge-fund manager John Paulson pared his long-held bet on gold by $400 million in the fourth quarter of 2015, according to a 13F filing. A spokesman for Mr. Paulson didn’t comment.

Gold-mining stocks also have racked up big gains, although many have drifted off their earlier highs. Newmont Mining Corp is up 48% so far this year, Randgold Resources has gained 54% and Barrick Gold Corp the world’s largest gold miner by output, is up 72%.

A chunk of gold’s gains was concentrated in the first six weeks of 2016, when stocks, junk bonds and oil prices slumped, began to recover and then tumbled again. That isn’t unusual, because so-called haven assets like gold and ultrasafe government bonds tend to rise at times of market distress.

 

 

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But gold has held on to those gains even since the Dow industrials and other stock indexes posted a surge into the end of the quarter, a development that many investors view as signaling that the concerns that fueled the year’s early declines haven’t been fully resolved.

Chief among those: fears that central banks’ embrace of exotic policy, which deepened at the end of January with Japan’s decision to adopt negative interest rates, will further pressure economic growth and lead to market shocks such as the one that hit stocks and risky assets in February.

“People are reluctant to take profits on their gold positions because of all the insecurity the world is facing,” said George Gero, managing director at RBC Wealth Management.

To be sure, gold’s gains aren’t purely based on fear. Policy makers in Europe, China and the U.S. all signaled during the quarter that they expect interest rates to stay lower for longer, reflecting soft growth and below-target inflation. Lower rates tend to be associated with higher gold prices, because they lessen the advantage that yield-bearing instruments such as bonds and savings accounts carry in comparison with gold.

The Federal Reserve’s signals it will be slow to raise rates this year also led to a weakening of the dollar, a shift that tends to bolster the prices of commodities including gold that are priced in the U.S. currency.

Political uncertainty also has raised investor anxiety. Markets are also concerned about what a potential U.K. exit from the European Union would mean for European trade. In the U.S., the popularity of presidential hopefuls Donald Trump and Bernie Sanders raises questions about the future course of U.S. politics and policy.

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