Megan Durisin Chicago
JUDGING by the barometer of hedge fund interest, there is less to get excited about in gold these days.
Even as Greece battled with its creditors to avoid default and keep the euro zone intact, speculators retreated from the precious metal used as a haven from economic and political upheaval. Money managers cut their net-long wagers by the most in 15 weeks, US government data show.
The strengthening dollar and record valuations for global equities are diminishing bullion’s appeal as a store of wealth. As the combined market capitalisation of stocks thundered through $67 trillion (R777 trillion) last week and the dollar traded at its highest level in at least a decade, this month’s losses in exchange traded products (ETPs) backed by gold reached $4 billion.
“Longer term, we’re still negative on gold,” Jack Ablin, the chief investment officer at BMO Private Bank, said last week. “I view it as insurance. If nothing happens, you should expect to lose money on it… As a risk asset, I think equities are more attractive.”
The net-long position in gold tumbled 18 percent to 110 164 futures and options contracts in the week to February 17, according to US Commodity Futures Trading Commission (CFTC) data. It was the third consecutive decline, the longest streak since November. Short holdings surged 44 percent, the most since August.
Gold loses lustre
Futures lost 1.8 percent last week to $1 204.90 an ounce on the Comex in New York, while the Bloomberg commodity index fell 1.7 percent. The Bloomberg dollar spot index climbed 0.4 percent. The Standard and Poor’s 500 index of US equities rose 0.6 percent and reached a record on Friday.
Emergency talks by euro area finance ministers on Friday led to a provisional deal intended to keep aid flowing to Greece. Even before then, gold had failed to attract much buying, with holdings in global ETPs little changed last week at 1 671.8 tons, data show.
John Paulson, the billionaire hedge fund manager, also is showing less enthusiasm for the precious metal these days. He kept his stake in the biggest ETP backed by bullion unchanged for a sixth consecutive quarter. As of December 31, Paulson owned 10.23 million shares in the SPDR Gold Trust, a government filing showed last week. Each share represents about 0.096 of an ounce.
Gold slumped 29 percent in the two years through 2014, the first consecutive annual declines since 1998, as equities surged and the US economy gained traction. Futures fell 5.9 percent in February, heading for the first monthly drop since October.
Minutes from the Federal Reserve’s (Fed) January meeting showed some policymakers argued for keeping interest rates near record lows.
The policymakers cited a strengthening dollar, international flashpoints from Greece to Ukraine and slow wage growth among reasons for delaying the first rate increase since 2006, according to the record released on February 18. Higher borrowing costs cut gold’s allure because the precious metal generally offers returns only through price gains.
Bullish
“Given the big drop we’ve had in the last month, I would certainly be bullish on gold,” Adrian Day, the president of Adrian Day Asset Management, said last week. “The Fed minutes were extremely positive. The longer the Fed goes on, the more difficult it is for them to raise interest rates, because increasingly, they’re waiting for perfect conditions.”
Net wagers across 18 US traded commodities rose 15 percent to 584 669 contracts as of February 17, the first gain this year, CFTC data show. Crude holdings rose for the first time in five weeks before prices capped a weekly loss on expanding US inventories.
A measure of net-long positions across 11 agricultural commodities jumped 45 percent to 279 963 contracts, the government data show. The Bloomberg agriculture index of eight farm products fell 1.5 percent last week.
“With the strength of the US dollar… it’s going to put some pressure on the export markets,” Susan Dambekaln at Capital Innovations said on Friday. – Bloomberg