Gold rush: Commodity surge heralds hefty gains as price projections are pushed higher

Gold bars and coins

Soaring gold prices are bringing stellar returns for hedge funds this year, and now projections for the rest of 2020 are being revised upwards in light of the commodity’s runaway momentum.

Pictet Wealth Management, an investment management unit of the Geneva-headquartered wealth management giant Pictet Group, adjusted its projections higher, citing sustained gold price momentum amid higher short-term inflation prospects.

Noting how gold prices have historically proved sensitive to US real rates, Luc Luyet, Pictet Wealth’s currencies strategist, said the recent lows in 10-year real rates have helped drive gold prices to multi-year highs.

Unprecedented central bank liquidity, coupled with traditional seasonality of Indian and Chinese jewellery demand, may also sustain prices until the end of the year, Luyet said in a note.

As a result, Pictet’s three-month projection was recently revised upwards from USD1,670 per troy ounce to USD1,890 per troy ounce. Six-month price projections have risen from USD1,780 to USD1,950, and its 12-month projection stands now at USD2,000, up from USD1,820.

Investors have piled into gold this year, reaffirming the commodity’s historic ‘safe haven’ status as they sought refuge from the impact of March’s Covid-19 crash.

Paul Singer’s activist hedge fund Elliott Management, and Odey Asset Management, Crispin Odey’s long-running contrarian firm, are among the high-profile hedge funds who were reportedly betting big on the commodity during the first half of 2020.

Gold’s price surge has brought a hefty 67 per cent return for Delbrook Capital, a specialist metals-focused long/short equity hedge fund, over the past six months.

Roughly a third of Delbrook’s performance has been driven by mid-sized precious metals companies that issued equity from their treasury, the Vancouver-based firm said.

Delbrook, which surged 23 per cent in June alone, believes that M&A activity within the metals and mining sector will prove a long-term driver of fund returns.

“Throughout the month, positive earnings momentum and greater clarity around the macroeconomic picture led to an influx of quantitative and generalist money into the mining sector,” Delbrook said in an investor letter this week.

“This rising tide meant that our short positions detracted just over a percentage point from performance and precious metal long positions drove our returns.”