Many early investors, including billionaires George Soros and Stanley Druckenmiller, saw this coming. In the third quarter, hedge funds including Soros Fund Management LLC pulled a combined 19.9 million shares of SPDR Gold. That’s almost half of the shares they bought in the three months through June, when the price of the metal was off to its best first half in almost four decades.
In the case of Druckenmiller, he told CNBC last month that he sold all his gold on the night of the election, as he bet on economic growth.
Fund Losses
You can’t really blame investors for exiting. The 162 funds invested in precious metals and tracked by Bloomberg posted an average loss of 8.2 percent this quarter, the worst of all asset classes, according to data compiled by Bloomberg on more than 100,000 hedge funds, private equity, ETFs and other funds worldwide. Those holding physical gold are worse off, with the metal poised for an 11 percent loss this quarter.
Some analysts aren’t convinced the rally is over. More infrastructure spending in the U.S. and low global interest rates may accelerate the pace of inflation, which would renew demand for gold as an alternative asset, Commerzbank AG analysts led by Eugen Weinberg, wrote in a note dated Dec. 2.
Gold may rise to $1,300 in the fourth quarter of 2017 and may reach $1,400 in 2018, according to Commerzbank.
Other Risks
There’s also the possibility of a Trump-led trade war with China, uncertainty from elections in Europe, risks to market stability from the Italian banking sector and complications from Britain’s exit from the European Union. All those could revive the appeal of bullion.
The sell-off in gold “is a little bit too violent and too short-sighted,” said Chad Morganlander, a money manager at Stifel, Nicolaus & Co. in Florham Park, New Jersey, where he helps oversee about $172 billion. The fund hasn’t pared its positions in SPDR Gold, he said. “We’re expecting gold to start to move higher over the course of the next six to 12 months as interest rates stay anchored below expectations.”
This article was provided by Bloomberg News.