Trade wars are proving food for gold. Hedge funds boosted their long position in bullion by the most in almost 12 years. That’s paying off, as gold futures surged to a 13-month high Friday on revived demand for the metal as a haven asset.
Funds are returning to gold as the US-China trade war, geopolitical tensions and signs of a swoon in global manufacturing dominate investors’ attention.
Reduced forecasts from the IMF and World Bank underscored rising concern over the global economy, helping bullion shake off its fits-and-starts pattern to rallies seen through much of 2019. Gains in exchange-traded funds and mining stocks rounded out the rally.
“The macro environment has changed for gold and the wind is at its back,” said Maria Smirnova, a Toronto-based portfolio manager at Sprott Asset Management, which oversees C$10.6bn ($7.98bn). “We’ve been seen signs of weakness in the economy for several months now.”
Gold futures for August delivery advanced 0.3% to settle at $1,346.10 an ounce Friday on the Comex in New York. That marked an eight straight daily increase, the longest run for a most-active contract since January 2018. The metal posted its biggest weekly gain in more than a year.
Hedge funds increased their long position in US gold futures and options by 38% to 174,233 contracts in the week ended June 4, Commodity Futures Trading Commission data showed on Friday. The net-long position more than tripled, while short-only wagers fell.
To counter heightened geopolitical and economic uncertainty, governments around the world including those in Russia and China have been on a bullion-buying spree in a bid to diversify reserves, according to the World Gold Council.
The metal, which doesn’t offer a yield, is also getting a boost from declining interest rates amid increased expectations that the Federal Reserve will ease monetary policy this year.
Anticipation of lower rates, which make gold more competitive against assets that offer interest, got a further boost on Friday on a US report that showed hiring and wage gains cooling in May and downward revisions to payrolls in prior months.
“The world economy is slowing, inflation is below target, and now the slowing US economy with today’s no-jobs report is the final straw to break the camel’s back for the Federal Reserve sitting on the sidelines,” Chris Rupkey, chief financial economist at MUFG Union Bank NA, said in an emailed report on Friday.
“Rate cuts are coming. Bet on it.’’ JPMorgan Chase & Co said the probability of a US recession in the second half of this year rose to 40% from 25% a month earlier.
Working against the case for a durable gold rally is a still-strong dollar and low inflation, according to Rob Haworth, senior investment strategist at US Bank Wealth Management in Seattle, which oversees $159bn. Gold is often used as a hedge against inflation.
“You are not getting reflation and that’s one of the headwinds for gold,” Haworth said by phone. “In the long run, we’re still seeing a strong dollar. We’re not seeing that trend reverse yet, and if that does reverse I think gold and foreign assets start to look a little more interesting.”
Funds are returning to gold as the US-China trade war, geopolitical tensions and signs of a swoon in global manufacturing dominate investors’ attention
