Why hedge funds are loading up on this asset

Tuesday, 10 December 2019
Adelaide, Australia
By Bernd Struben

  • Gold’s big buyers
  • Trade war pause

Right now, I believe you have a great and timely opportunity to invest before the boom.’

Rock Stock Insider’s Shae Russell

You’d be forgiven for thinking the gold sector has already experienced its boom.

After all, gold in Aussie dollars hit a record high $2,287 per ounce in early September. In US dollars that marked its highest level in six years.

It’s pulled back a bit since then, currently at $2,140 per ounce. But as you can see in the one-year price chart below, even that would have been record setting as recently as August.



chart image
Source: goldprice.org
Click to enlarge

And even with the 6.5% slip from its peak, gold has delivered a 23.4% gain over the past 12 months. With the lion’s share coming after the price really took off in May.

That, as you’d expect, has been a boon for many Aussie gold miners.

Shares in $22 billion gold mining giant, Newcrest Mining, for example, have gained 35.5% over the past year.

Newmont Goldcorp is up a more subdued 18.4% over the same time.

But, as you’d also expect, most every gold stock has trended lower since September’s price peak.

Does that mean you’ve missed the boat?

Not according to Shae Russell, who I quoted up top.

Shae’s the editor of The Daily Reckoning Australia, published by our friends at Fat Tail Media.

She’s also at the helm of their brand new introductory investment service, Rock Stock Insider. That service doesn’t exclusively cover gold. But it is her primary focus…and long-time passion.

More, after a look at the markets…

Markets

Overnight, the Dow Jones Industrial Average closed down 105.46 points, or 0.38%.

The S&P 500 down up 9.95 points, or 0.32%.

In Europe the Euro Stoxx 50 index closed down 20.16 points, or 0.55%. Meanwhile, the FTSE 100 lost 0.08%, and Germany’s DAX closed down 60.97 points, or 0.46%.

In Asian markets Japan’s Nikkei 225 is down 9.62 points, or 0.04%. China’s CSI 300 is down 0.17%.

The S&P/ASX 200 is down 14.83 points, or 0.22%.

West Texas Intermediate crude oil is US$58.89 per barrel. Brent crude is US$64.25 per barrel.

Turning to gold, the yellow metal is trading for US$1,461.05 (AU$2,140.11) per troy ounce. Silver is US$16.60 (AU$24.32) per troy ounce.

One bitcoin is worth US$7,339.29.

The Aussie dollar is worth 68.27 US cents.

Gold’s big buyers

Getting back to gold…and the boom still ahead…

Shae Russell’s exhaustive research — and lengthy list of top-shelf insider contacts — tell her gold’s bull run is only just getting started.

And the ‘smart money’ appears to agree.

As Bloomberg notes:

Hedge funds and other large speculators boosted their bullish bets on the precious metal by 8.9% in the week ended Dec. 3, government data showed Friday. That’s the biggest gain since late September.

Goldman Sachs also remains bullish on gold. It’s forecasting gold to pop over US$1,600 (AU$2,343) per ounce in 2020.

Among their reasons, gold’s go to status as a haven asset in times of global uncertainty. And if one thing is certain, it’s that we can expect more uncertainty next year.

Here’s the text from last Friday’s note by Goldman’s analysts (published by Bloomberg):

Gold cannot fully replace government bonds in a portfolio, but the case to reallocate a portion of normal bond exposure to gold is as strong as ever. We still see upside in gold as late cycle concerns and heightened political uncertainty will likely support investment demand.

Geopolitical turmoil is one of the factors we usually see ramp up demand for gold.

Persistently low interest rates is another. Gold, which critics of the yellow metal say pays no yield, tends to do well when the cash rate is close to zero. Or even negative.

Then there’s the central bank buying itself. We’ve covered that in detail here at the Insider over the past months. Russia and China have been leading the pack, hoarding gold as a looming alternative to the US dollar. But they’re far from the only central banks stocking up on bullion.

In fact, according to Goldman Sachs, central banks are buying 20% of the world’s gold supply.

Jeff Currie is the head of global commodities research at Goldman. Speaking to Bloomberg Television yesterday, Jeff said:

De-dollarization in central banks — demand from central banks for gold is biggest since the Nixon era, eating up 20% of global supply. I am going to like gold better than bonds because the bonds won’t reflect that de-dollarization.’

If this buzz catches, you can see how gold could rocket to US$1,600 per ounce in short order. And it’s no stretch to see the yellow metal top US$2,000 per ounce by this time next year.

Don’t forget the bond market is considerably larger than the stock market. In the US, according to data from Zacks, the total value of all outstanding shares stood at US$30 trillion in April. A tidy sum. Yet the total amount of debt issued via bonds exceeds US$40 trillion.

With central banks snapping up 20% of the gold supply as investors shift from bonds to gold something will have to give. And that something is the price.

That’s why Shae Russell says you still have the opportunity to invest before the boom. And she’s eager to show you how and where to invest — quickly — to potentially make the most impact.

You can get the full story from Shae herself, right here.

Trade war pause

Having touched on the subject of geopolitical turmoil…you’ve got to hand it to Donald Trump.

The man sends investors panicking with one tweet…then soothes their souls with the next. The financial world has never experienced anything like this before. Which, if nothing else, keeps things interesting.

The next interesting date to keep an eye on is this Sunday, 15 December. That’s the day Trump promised to slap hefty new tariffs on US$160 billion of Chinese imports. Unless, that is, US and Chinese negotiators can reach an agreement on phase one of that elusive trade deal.

Now the mainstream media — largely aligned against Trump — has long been telling us the trade war is hurting the US economy just as much as China’s. The data behind that mantra, however, is fading.

As we covered yesterday, November saw 266,000 new jobs created in the US. Meanwhile, Chinese global exports fell 1.1% that same month. And according to the customs administration, exports to the US were down 23%.

That’s going to cost some jobs in China. And it puts Trump in an even stronger position to demand concrete concessions in any trade deal.

Many pundits believe this could force China’s hand into agreeing to a phase one deal before the 15 December deadline. I’m not convinced.

Rather, I see both sides announcing that they’re closer than ever to reaching a partial deal…but still need to hammer out some specifics. Like how in the heck to enforce it.

That could lead to some market wobbles heading into the weekend. But I expect Trump will flip to soothing mode.

In the spirit of Christmas and a sign of his goodwill — ‘best president ever’ — the new round of tariffs will be delayed until early next year.

That should see markets stabilise and potentially even post a few more records heading into the holidays.

Unless of course Jeremy Corbyn wins an upset victory over Boris Johnson in Thursday’s UK elections.

Or Kim Jong-un ups the stupidity level with threats his starving nation will take down the West.

Or…

Cheers,
Bernd