Gold Bulls Rewarded With Best Rally Since January as Dollar Dips
(Bloomberg) -- When the dollar loses, gold wins. At least that’s what hedge funds are betting. Money managers who hoarded bullion at the fastest pace in
more than a month were rewarded with the biggest rally in prices since January. Weaker U.S. consumer confidence and softening factory production drove the dollar lower for a fifth week, the longest stretch since 2013.
Gold, first struck into coins more than two millennia ago, is still sought by some investors as an alternative currency or hedge against inflation. Signs of cooling expansion mean the Federal Reserve could wait longer before raising interest rates, increasing the chances that inflation will accelerate. Record-low rates increase bullion’s appeal because the metal doesn't pay interest, unlike competing assets such as new bonds.
“Right now, it would be a pretty interesting entry point, if you are a long-term investor,” Lara Magnusen, a La Jolla,California-based portfolio manager at Altegris Investments Inc., which oversees $2.65 billion, said by phone May 14. “We are shifting out of the fear of deflation, and moving into more of a reflationary world.”
Speculators’ net-long position in gold jumped 14 percent to 36,150 futures and options as of May 12, U.S. Commodity Futures Trading Commission data show. That was the third advance in four weeks and the biggest gain since April 7.
Gold has rebounded more than 3 percent in May as more signs of sputtering growth challenged the Fed’s view and stoked speculation that borrowing costs will stay low for longer. The central bank’s benchmark rate has been near zero percent since
2008. Rising oil prices have also brought investors back to gold, on concern that higher energy costs will spur inflation.
Even while there have been some signs of weaker growth, an improving labor market still gives the Fed some room to raise rates for the first time in almost a decade. Claims for U.S.jobless benefits fell by 1,000 to 264,000 in the week ended May
9, pushing the monthly average to the lowest since April 2000,Labor Department data show. Gold dropped 29 percent in the previous two years as the dollar surged, inflation remained muted and the unemployment rate declined.
The U.S. economy is doing better than its global counterparts, and that will help the dollar to regain its appeal, according to Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel, Nicolaus & Co., which oversees about $170 billion. Gold reached this year’s low in March as the Bloomberg Dollar Spot Index climbed to the highest since the data begins in 2004.