Gold Gains Favor with Hedge Funds

February 2, 2015 James Heinsman Economic Barometer

Gold’s allure is growing as hedge fund managers look with caution to slowing European and Asian economies, which in turn can freeze US economic growth.

Investors are turning to gold by the droves, with an 80 percent increase in their net-long position this year over last year. In addition, the economy’s growth during last year’s fourth quarter was less than had been expected. To top it off, officials of the Federal Reserve stated their recognition of global risks when their policy meeting ended last week.

This past month’s prices for gold topped even the largest monthly gain during the last three years. European and Asian policy makers are taking actions to stimulate their economies, and making currency alternatives more appealing while their currencies are being revalued. Slower expansion overseas has only stimulated speculation here in the US that the Fed will continue to wait it out before raising US interest rates.

“If we’re in a really bad global economy and we have more downbeat news here, the motivation for the Fed to raise interest rates isn’t there,” stated Marty Leclerc, the chief investment officer at Barrack Yard Advisors. “That would hence make gold more attractive if everyone is debasing currencies.”

During the week ending on January 27, the net-long position in gold climbed by 15 percent to 167,693 futures and options, according to the US Commodity Futures Trading Commission. This is the most long-holdings since 2012.

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