Paulson, hedge funds remain bullish on bullion

Joe Richter and Marvin G Perez

Paulson, hedge funds remain bullish on bullion

NEW YORK — Hedge funds raised bullish gold wagers to a three-month high last week as signs of slowing US economic growth spurred demand for haven assets. Billionaire John Paulson maintained his bullion holdings last quarter.

The net-long position climbed 17% to 69,291 futures and options in the week ended last Tuesday, US Commodity Futures Trading Commission data show. Long wagers rose 8.8%, the most since last March. Net-bullish holdings across 18 US-traded commodities rose 18% to 1.07-million contracts, the highest since October 2012, led by silver and coffee.

Investors’ return to bullion after the bear market last year is driving prices to the longest rally since 2011. US factory output unexpectedly fell last month and emerging-market equities and currencies weakened.

Mr Paulson, the biggest owner of the largest exchange-traded product, left his holdings unchanged in the fourth quarter, a government filing showed. Goldman Sachs and Barclays said the rebound would falter.

The run-up in prices in recent weeks has been attached to the meltdown in emerging markets, and adding to that concern is US economic news, said John Rutledge, a New York-based chief investment strategist at Safanad, which manages more than $4bn of assets.

It’s still probably too soon to say the trend in gold market has fully turned. You’ve got people who are bears because they see inflation as under control, and others looking further ahead seeing inflation.

Futures in New York rose 4.4% last week to $1,318.60/oz, posting eight straight gains, the best streak since July 2011. The Standard & Poor’s GSCI gauge of 24 raw materials climbed 0.8%, while the MSCI All-Country World index of equities advanced 2.4%.

The Bloomberg Dollar Spot Index, a gauge against 10 major trading partners, declined 0.6%. The Bloomberg Treasury Bond Index lost 0.1%. Gold rose another 0.7% on Monday.

Holdings in the SPDR Gold Trust, the biggest exchange-traded product backed by bullion, climbed for three weeks, the longest stretch since August last year. Paulson & Company held 10.23-million shares as of December 31 last year, unchanged from September 30 and valued at about $1.19bn, according to a US Securities and Exchange Commission filing made last Friday.

US retail sales fell last year by the most since June 2012, and jobless claims unexpectedly rose in the week to February 8, government data showed.

Federal Reserve chairwoman Janet Yellen said on February 11 the recovery in the US labour market is far from complete.

Gold jumped 70% from December 2008 to June 2011 as the central bank pumped more than $2-trillion into the financial system. Prices plunged 28% last year, the most since 1981, after some investors lost faith in the metal as a store of value.

Last November, Mr Paulson told clients that he personally would not invest more money in his bullion fund because it was unclear when inflation would quicken. Gold held in global exchange-traded products tumbled 33% last year and the value of the assets dropped $73bn.

This year’s rally will flounder absent a more meaningful shift in investor sentiment, Barclays analysts said on February 14.

Goldman analysts led by Jeffrey Currie, the head of commodities research, said in a report two days earlier that gold will grind lower as US growth improves, reiterating a forecast for prices to reach $1,050/oz by the end of the year.

Gold may be establishing a bottom, but there are still a lot of headwinds, said Donald Selkin, who helps manage about $3bn as chief market strategist at National Securities Corporation in New York. Ms Yellen said that the tapering is going to continue, and inflation is still low.

Investors became bullish on silver, holding 7,675 contracts as of February 11, the CFTC data showed. That compares with a net-short position of 353 contracts a week earlier. Futures rose for 10 straight sessions through February 14, the longest streak since March 2008. Last month demand for silver coins sold by the US Mint almost quadrupled.

Bullish bets on crude oil climbed 11% to 306,021 contracts, the highest since last August, government data show.

West Texas Intermediate advanced to the highest price in almost four months on February 12.