Gold Posts Biggest Quarterly Gain in Decades
March 31 2016 - 10:26PM
Dow Jones News
By Ira Iosebashvili
Gold prices notched their largest quarterly gain in three
decades, showing that worries about the markets and economy
continue despite a six-week-long rally in stocks, bonds and
commodities.
Gold prices rose 16.5% in the first three months of the year,
the biggest leap since 1986. Holdings at SPDR Gold Shares, the
world's largest gold-focused exchange-traded fund, are approaching
their highest level since December 2013, while traders are placing
more bets on rising prices.
The rally is a rare bit of good news for a metal that has been
in retreat for much of the past five years, a period when U.S.
economic activity picked up and the dollar surged. Even so, many
investors remain skeptical that gold will go much higher unless the
global outlook dims considerably.
"This is one of the most surprising gold rallies I have ever
seen," said Ira Epstein, a strategist at the Linn Group who has
been trading gold for 40 years.
Net bets on higher gold prices by hedge funds and other
speculative investors stood at 161,610 contracts in the week ending
March 22, their highest level since February 2015, data from the
Commodity Futures Trading Commission showed.
Jeffrey Gundlach, who runs Double Line Capital LP, said in
January that gold could rise as high as $1,400 a troy ounce this
year. He repeated the call again in March, but said he had become
more nervous about the metal, given the magnitude of its recent
rally.
Hedge-fund manager John Paulson pared his long-held bet on gold
by $400 million in the fourth quarter of 2015, according to a 13F
filing. A spokesman for Mr. Paulson didn't comment.
Gold-mining stocks also have racked up big gains, although many
have drifted off their earlier highs. Newmont Mining Corp is up 48%
so far this year, Randgold Resources has gained 54% and Barrick
Gold Corp., the world's largest gold miner by output, is up
72%.
A chunk of gold's gains was concentrated in the first six weeks
of 2016, when stocks, junk bonds and oil prices slumped, began to
recover and then tumbled again. That isn't unusual, because
so-called haven assets like gold and ultrasafe government bonds
tend to rise at times of market distress.
But gold has held on to those gains even since the Dow
industrials and other stock indexes posted a surge into the end of
the quarter, a development that many investors view as signaling
that the concerns that fueled the year's early declines haven't
been fully resolved.
Chief among those: fears that central banks' embrace of exotic
policy, which deepened at the end of January with Japan's decision
to adopt negative interest rates, will further pressure economic
growth and lead to market shocks such as the one that hit stocks
and risky assets in February.
"People are reluctant to take profits on their gold positions
because of all the insecurity the world is facing," said George
Gero, managing director at RBC Wealth Management.
To be sure, gold's gains aren't purely based on fear. Policy
makers in Europe, China and the U.S. all signaled during the
quarter that they expect interest rates to stay lower for longer,
reflecting soft growth and below-target inflation. Lower rates tend
to be associated with higher gold prices, because they lessen the
advantage that yield-bearing instruments such as bonds and savings
accounts carry in comparison with gold.
The Federal Reserve's signals it will be slow to raise rates
this year also led to a weakening of the dollar, a shift that tends
to bolster the prices of commodities including gold that are priced
in the U.S. currency.
Political uncertainty also has raised investor anxiety. Markets
are also concerned about what a potential U.K. exit from the
European Union would mean for European trade. In the U.S., the
popularity of presidential hopefuls Donald Trump and Bernie Sanders
raises questions about the future course of U.S. politics and
policy.
(END) Dow Jones Newswires
March 31, 2016 22:11 ET (02:11 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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