Gold is back in fashion after $15t global equity decline
Bullion has seen a revival of its appeal as a haven after being mainly ignored last year in the face of the Paris terror attacks.
The $15 trillion rout in global equity markets since May is reawakening the lure of gold for investors seeking safety.
Hedge funds more than doubled their net-long position in bullion last week, just three weeks after they were the most-bearish ever. Investor holdings of gold through exchange-traded products are expanding at the fastest pace in a year, and the value of the ETPs has jumped by $3 billion in 2016.
Bullion has seen a revival of its appeal as a haven after being mainly ignored last year in the face of the Paris terror attacks in November and the Greek bailout negotiations in July. This time around, concerns about global markets will support the metal, Citigroup analysts led by Ed Morse said last week as they raised their 2016 price forecast.
"People have become complacent about risks, whether it's macroeconomic and geopolitical," said George Milling-Stanley, the Boston-based head of gold investments at State Street Global Advisors, which oversees $2.4 trillion. "What's out of fashion may be coming back. That atmosphere of people feeling completely calm and untroubled, I think, is starting to go away. Gold is a very good risk-off trade, and I think people are starting to look very, very carefully at the risky positions that they have on a number of other markets."
Futures gained 4.2 per cent in January to $1,105 an ounce on the Comex in New York, heading for the biggest monthly gain in a year. The net-long position in gold futures and options reached 1,934 contracts in the week ended on January 19, according to US Commodity Futures Trading Commission data released three days later. That's up from 902 a week earlier and compares with a record net-short holding of 24,263 held at the end of last year.
Spot gold rose 0.5 per cent to $1,103.61 an ounce by 1314 GMT on Monday. US gold for February delivery gained 0.7 per cent to $1,104.30 an ounce.
Investors poured $926 million into ETFs backed by precious metals so far in January, the latest data compiled by Bloomberg show. That's on pace for the biggest monthly expansion in a year. Holdings in global gold ETPs have risen above 1,500 metric tonnes to the highest since November.
The attraction to gold this month "could partly have to do with re-balancing investors' portfolio," said Kevin Caron, a Florham Park, New Jersey-based market strategist and portfolio manager who helps oversee $180 billion at Stifel Nicolaus & Co. "An entry price here nearer to $1,000 than $2,000 makes a lot more sense."
Gold is climbing on concerns about further contagion from China, volatile stock markets and tensions in the Middle East, Citigroup said in a January 19 report. The bank raised its 2016 outlook by 7.5 per cent to $1,070.
The turmoil will support prices this quarter, before a stronger dollar ends the rally later in the year, the analysts said.
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