Gold prices are storming back towards their mid-April highs, with investor appetite holding up amid sustained market volatility – potentially bringing further gains for hedge funds which have built major positions in the commodity recently.
Gold prices are storming back towards their mid-April highs, with investor appetite holding up amid sustained market volatility – potentially bringing further gains for hedge funds which have built major positions in the commodity recently.
Pictet Wealth Management, part of the Geneva-headquartered investment management giant Pictet Group, said demand for insurance against heightened uncertainty could help sustain the recent upward move in gold prices, and duly has revised its forward price projections.
Luc Luyet, currencies strategist at Pictet Wealth Managment, conceded the risk-reward ratio is “not particularly attractive for gold”, noting the recent stabilisation of US real rates following Q1’s market shocks – along with the continued strength of the US dollar – would normally suggest a short-term price slide.
But this has been offset by “massive” liquidity injections from central banks following the coronavirus crash, along with renewed US-China tensions earlier this month.
“Elevated uncertainties linked to the flood of liquidity into the financial system and the increase in global debt, coupled with elevated geopolitical uncertainties, may further increase safe-haven demand for gold,” Luyet said in a market commentary this week.
As a result, Pictet has revised its three-month price projection from USD1,580 per troy ounce to USD1,630 per troy ounce to reflect the strong appetite. Pictet has also adjusted its 12-month projection to USD1,800 per troy ounce.
As the Covid-19 pandemic shook global economies this year, an assortment of hedge fund managers have piled into gold on the back of its traditional ‘safe haven’ status.
Well-known hedge funds such as Paul Singer’s high-profile activist firm Elliott Management, and Odey Asset Management, the contrarian outfit run by long-term market bear Crispin Odey, have built sizable bets in the asset lately. Gold futures were reportedly the third-largest position in the latter’s Odey European hedge fund strategy earlier this year.
Meanwhile, Delbrook Capital, a Vancouver-based long/short equity hedge fund specialising in gold and other precious metals, surged 20 per cent in April on the back of commodity price volatility.
“The lack of other types of gold demand, together with short-term trends in the US dollar and real rates, mean we continue to expect periods of price weakness for gold that could improve its attractiveness,” Luyet said this week.
“We believe gold prices could find support around USD1,610-1,650, thanks to continued strong investment demand.”
