Gold bulls fade despite sharp jump in bullion’s price
Fund managers including hedge funds have reduced their bets on gold by over $2bn in less than one week, according to data analysed by Reuters, as those offloading it to cover losses from other holders were joined by more, selling on grounds of high prices.
Data from America’s Commodities Futures Trading Commission on Friday showed net long money in gold fell by $2.2bn, though $12.2bn was still betting bullion’s price will rise by mid-May.
The fall in bullishness equated to a decline in the number of net gold contracts, held on the COMEX division of New York Mercantile Exchange, from 92,498 to 78,619.
This is the smallest net long position funds had in gold since December 2008, according to Reuters.
The relative lack of enthusiasm comes as fund managers argue the recent bear market is a product of market volatility, and the medium-term outlook remains strong.
Angelos Damaskos, CEO Sector Investment Managers and fund advisor to the Junior Gold fund, said the asset will “regain its safe haven status in the medium term”.
Damaskos, a long-term investor in bullion, said the 20% drop in the price that had spurred some commentators to talk of a ‘bear’ market is “relative to the very high prices of summer 2011.
“Markets continue to be hugely volatile and this fall does not change the outlook for gold shares. In the short term the gold price is likely to remain volatile, while in the medium to long term the ongoing economic environment will see investors return to gold as an attractive store of value and safe haven.”
Damaskos points to the ratio of market capitalisation of all senior gold producing companies to their gold reserves, a ratio that has “reached levels only seen during the depths of the global financial crisis in 2008.
“It implies extreme investor aversion to gold mining shares as opposed to gold. We expect it will not be long before gold shares recover to a more normal relationship to gold.”
Damaskos foresees renewed appetite for gold “when the Eurozone debt crisis starts its next chapter.
“The present valuation anomaly of gold shares becomes more apparent every day and, should gold reach for new highs, could provide a rarely seen investment opportunity.”
Gold traded above $1650 per troy ounce in early May, before falling more than $100 to below $1550 – however it may then have caught out some funds reducing their bullishness, as it jumped back to nearly $1600.
Its latest price was $1595.10 per troy ounce.