Money Managers and Hedge Funds Hike Gold Wagers

Money managers and hedge funds boosted bullish gold wagers to a three month high in February as demand for safe haven assets grew.

  • Fueling interest in gold among smart money players are:
  • A string of soft data that hints at a slowing U.S. economy
  • Melting emerging markets
  • Geopolitical turmoil in Ukraine, Turkey and Argentina
  • Bargain hunting after a painful showing in 2013
  • Insatiable demand from the world’s No.1 and No. 2 consumers: China and India respectively.

Gold prices soared $28.70, to $1,350.30 an ounce, March 3 marking the yellow metal’s highest close since October. Stoking gains was a flight to safety among jittery investors as the situation in Ukraine and Russia grew more acute and roiled global market. The meteoric rise in gold was especially impressive given the rally in the U.S. dollar. Typically, a rising greenback weighs on gold given their frequent, but not steadfast, inverse relationship.

The gains came on the heels of a stellar February. Gold prices glistened to their brightest level in 17 weeks to $1,345.46 on Feb. 26. Two days later, the metal closed out a second month of solid gains, ending February up some 6%. It marked the best monthly gain since July. Up 10% year-to-date, gold is the currently the third biggest gainer the Standard & Poor’s GSCI gauge of 24 commodities, behind only coffee and lean hogs. Additionally, gold holdings in exchange traded products jumped 0.4% in February, the first increase in 14 months.

To be sure, savvy smart money market participants have flocked to gold and helped goose prices.

According to data from the U.S. Commodity Futures Commission, net-long (bullish) gold positions held by money managers rose to a 16-week high in February. Gold bets swelled 31% to 90,942 contracts, the highest since Oct. 29 and three times the level of bullish wagers eight weeks earlier.

The flight into gold by the “big boys” is driving prices to the longest rally in some two years. It follows a brutal 2013 that left the yellow metal down 28% and had the precious metal logging its first annual loss in 13 years. But that was then and this is now. Many money managers are betting gold has found a bottom, and have taken a shine to the yellow metal. They’ve added precious metal bullish positions amid heavy portfolio rebalancing.

But it’s more than bargain hunting that’s luring money managers to gold. Also stoking gold’s appeal is its role as an inflationary hedge, a position it’s reclaimed as some question the Federal Reserve’s commitment to ending its ultra-loose stimulus measures. Additionally, there is renewed interest in gold as a store of value, portfolio diversifier and safe haven asset as global fiscal uncertainties mount.

One big money player that has bulked-up its gold holdings is Bridgewater Associates. One of the world’s largest fund companies with some $150 billion in global investments, Bridgewater revealed in its latest 13F statement that it has significantly upped its stake in a number of gold stocks while taking fresh positions in others. Suggesting confidence in the future direction of the yellow metal, Bridgewater’s portfolio is peppered with a number of gold and gold mining equities. With gold now priced near its average cost of product, and below its margin cost of production for a significant proportion of its supply, fundamentals alone make miners attractive. And with demand for gold bars, coins and jewelry high, production will remain robust.

Gold is like an insurance policy. Just as you don’t buy home insurance expecting a flood or fire, it’s comforting to know you have it and invaluable when you need it. Also appealing is that unlike other commodities and equities, gold can be propelled by politics, geopolitical tensions, international incidents, financial calamities or an unexpected rise in inflation.

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