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Hedge Funds Jump on Gold for Life Raft as Dollar Ship Sinks (Bloomberg)

By Luzi Ann Javier
(Bloomberg) -- There’s no stopping the gold bulls.
Hedge funds increased their wagers on a gold rally to the
highest since November, betting that this year’s 11 percent
advance has more to go. Investors are also loading up on the
metal through exchange-traded products, pouring $487 million
into SPDR Gold Shares on Wednesday. That was the biggest daily
inflow into the world’s top bullion ETF in seven months.
Gold is shining bright as the dollar trades near the lowest
since November, lifting the appeal of alternative assets. At the
same time, escalating tensions between the U.S. and North Korea
have boosted demand for a haven, while delays in implementation
for President Donald Trump’s campaign promises to cut taxes and
pursue a pro-growth agenda are clouding the outlook for
earnings.
“There’s an appetite for storehouses of wealth at this
point,” said Peter Sorrentino, the Dallas-based chief investment
officer of Comerica Asset Management Group, which oversees $43
billion, including gold ETFs. “Rather than run the risk of
having your dollars eroded on a relative basis, you can use gold
as a life raft to sort of avoid a sinking ship.”
Money managers raised their gold net-long position, or the
difference between bets on a price increase and wagers on a
decline, by 15 percent to 161,263 futures and options contracts
in the week ended April 18, according to U.S. Commodity Futures
Trading Commission data released three days later.

French Election

While investors are bullish on gold, prices took a knock on
Monday on speculation that pro-growth centrist Emmanuel Macron
will become France’s next president by defeating far-right
nationalist Marine Le Pen in the second round of the
presidential elections on May 7.
Gold futures in New York fell 1.2 percent to $1,273.30 an
ounce on Monday, paring the month’s gain to 1.8 percent.
Standard Chartered Plc and Bank of America Merrill Lynch
say the metal is headed towards $1,300, while Societe Generale
SA recommends investors take long positions in the metal.
Geopolitical tensions are giving gold a boost, Standard
Chartered analysts including Suki Cooper, wrote in a note April
18. Last week, Vice President Mike Pence said North Korea
shouldn’t doubt Trump’s resolve after his “decisive action”
against Syria and Afghanistan. The U.S. dropped the largest non-
nuclear bomb it’s ever used in combat on Islamic State positions
in Afghanistan April 13, days after it launched a cruise missile
strike against Syria.

Coin Buying

Events in Europe have also been a boon for gold. There are
still doubts over where the U.K.’s post-Brexit economy is
heading. In France, a presidential election runoff is scheduled
for May 7 and candidates are stressing their commitment to fight
terrorism after the killing of a policeman on the Champs-Elysees
in Paris last week. Demand for gold coins is surging in the
nation, with CoinInvest selling more than 1,000 ounces on
Friday. That’s up from typical sales of 200 to 300 ounces,
according to Chief Executive Officer Daniel Marburger.
“The important thing about gold is it provides a huge
geopolitical hedge whether it’s North Korea or its French
election risks, or wherever else it comes,” Francisco Blanch,
the head of commodities research at Bank of America, said in a
Bloomberg TV interview last week. “People are going to rush into
gold.”
Open interest in gold futures has rebounded to the highest
since January, while limited prices swings are proving the
metal’s worth as a haven as investors seek stability. Bullion’s
60-day historical volatility fell on Friday to the lowest since
October 2014. Assets in the SPDR Gold Shares ETF have climbed
for three straight weeks.
Still, gold’s appeal could be curbed amid softening
seasonal demand in India, and as the market may be
underestimating the impact of higher U.S. interest rates, Tom
Kendall, head of precious metals sales at ICBC Standard Bank,
said in a report April 21.
The prospect of higher borrowing costs remain a headwind
because it makes the metal less competitive against interest-
bearing instruments like bonds. The Federal Reserve appears on
course to raise interest rates twice more this year and
officials have signaled they remain confident in their forecast
for growth of around 2 percent despite a series of weak first-
quarter reports.
“It’s really the dynamic between interest rates and the
price of gold that explains the issue” against owning gold, Mark
Heppenstall, Horsham, Pennsylvania-based chief investment
officer of Penn Mutual Asset Management, which oversees $22
billion.

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