Hedge funds increased bets on gold rallying after prices plunged the most in 33 years, underscoring billionaire John Paulson’s view that bullion will rebound.
Fund managers and other speculators increased net-long positions in gold by 9.8 percent to 61,579 futures and options in the week ended April 16, U.S. Commodity Futures Trading Commission data show. Investors turned bullish on silver for the first time in three weeks. Wagers on higher prices across 18 U.S.-traded raw materials climbed 5.1 percent to 453,467 contracts, the first gain in three weeks.
A two-day, 13 percent drop in gold through April 16 drove prices to a two-year low, erasing $560 billion from the value of central-bank reserves since the metal peaked in 2011. Official- sector purchases and demand in Asia will support bullion, Paulson & Co. said in a letter to clients last week, joining BlackRock Inc., the world’s biggest money manager, in predicting a rebound. The U.S. Mint’s sales of American Eagle gold coins surged eightfold this month from a year earlier.
“Given the price action, this rise in holdings was pretty surprising,” said Dan Denbow, a fund manager at the $1 billion USAA Precious Metals & Minerals Fund in San Antonio. “People may have been looking to get back into the market and are taking advantage of the price to do so. There are people who still have a long-term belief in it. Physical buyers have also stepped up.”
Gold futures slumped 7 percent to $1,395.60 an ounce on the Comex in New York last week, the biggest drop since September 2011. The Standard & Poor’s GSCI Spot Index of 24 raw materials fell 2.5 percent. The MSCI All-Country World Index of equities slid 2.2 percent and the dollar rose 0.5 percent against a basket of six trading partners. Treasuries rose 0.1 percent, a Bank of America Corp. index shows. Gold futures for June delivery gained 1.9 percent to $1,422.20 at 10:05 a.m. on the Comex in New York.
Since reaching $1,321.50 on April 16, the lowest since January 2011, bullion rebounded 7.6 percent. The China Gold Association said retail sales surged April 15 and 16. Imports by India may jump by 36 percent in the three months through June compared with a year earlier, the Bombay Bullion Association Ltd. said April 18. The U.S. Mint sold 167,500 ounces so far in April, heading for the biggest monthly total since May 2010.
Central-bank stimulus will “eventually lead to inflation,” Paulson & Co. said in a letter to clients obtained by Bloomberg News, reiterating a bullish outlook for bullion. The hedge fund is the biggest shareholder in the SPDR Gold Trust, the largest exchange-traded fund backed by the metal. The price plunge was a “panic event,” Catherine Raw, a fund manager in London at BlackRock, which oversees about $3.8 trillion, said in an interview April 16 on Bloomberg Television.
While the net-long position in gold climbed last week, most of the gain was attributable to a retreat in short holdings rather than an increase in long wagers. The divergence shows that the gain in the net position may reflect short traders taking profit, rather than investors becoming more bullish, according to Stanley Crouch, who helps oversee $2 billion as chief investment officer at New York-based Aegis Capital Corp.