The Federal Reserve is likely to start a third round of stimulus in June, Goldman's commodity research team, led by Jeffrey Currie in New York, wrote in a report May 9. The metal rose about 70 percent as the Fed bought $2.3 trillion of debt in two rounds of so-called quantitative easing ending in June 2011. It's too early to say the dollar has reclaimed its status as the currency of last resort over gold, the team wrote.
Soros, Paulson
Billionaire investor George Soros raised his stake in the SPDR Gold Trust, the biggest exchange-traded product backed by bullion, according to a filing yesterday reflecting first- quarter holdings. Paulson & Co., the hedge fund founded by billionaire John Paulson, maintained its investment in the ETP last quarter, while Steven A. Cohen's SAC Capital Advisors LP cut.
Record-low interest rates from the U.S. to Europe may prop up demand for gold, which generally earns investors returns only through price gains. The Fed has pledged to keep rates at "exceptionally low levels" at least through late 2014. Central banks are buying bullion at the fastest pace in five decades, adding 439.7 tons in 2011. They may purchase a similar amount this year, the London-based World Gold Council estimates.
VIX Correlation
When gold reached its record Sept. 6, it was moving in tandem with the VIX as Europe's debt crisis and mounting concern about the U.S. recovery spurred investors to buy the metal to diversify their assets. At the time, the metal's correlation coefficient with the VIX surged to as high as 0.92. A reading of 1 indicates that the two securities trade in lockstep. The correlation is now less than 0.1 percent.
The Dollar Index gained for 12 sessions through May 15, the longest rally since its inception in 1973. The leadership vacuum in Greece and concern that the country would quit the common currency spurred investors to sell euros and buy dollars. That also diminished demand from investors who use gold to hedge against a weaker greenback. Open interest, or contracts outstanding, in U.S. futures dropped 18 percent since July, data compiled by Bloomberg show.
Holdings in ETPs backed by gold retreated 0.3 percent this month after dropping 0.7 percent during the previous two months, data compiled by Bloomberg show. In the second quarter, the VIX has surged more than 40 percent while gold has dropped 6.9 percent, poised for the biggest quarterly loss since June 2004.
Net-Longs
Hedge funds and other speculators are holding a net-long position of 92,498 futures and options, down from 253,653 contracts in August, Commodity Futures Trading Commission data show.
"Usually, gold could be viewed as a safe haven or a contra play to the U.S. dollar," said Bill Greiner, who helps manage $13 billion of assets as chief investment officer at Mariner Wealth Advisors in Kansas City, Missouri. "It's really doing neither right now. It's highly possible that we'll see gold and commodities in general continue to drift down until the Fed steps in with some sort of quantitative easing package."