When you ask Chad Morganlander about the gold market, he wants to talk about The Clash. To him, there’s no better way to describe the tug-of-war gripping bullion investors than the band’s classic Should I Stay or Should I Go.
Futures in New York have posted three straight weekly losses, tempering one of the best rallies in commodities this year. Relations between Beijing and Washington are starting to thaw, plus the US economy’s biggest pillar – the consumer – is proving resilient. That should cut demand for havens like gold, and while investors have certainly started backing way, so far at least, there’s no mass exodus.
“Unfortunately, we know that these situations turn on and off with one tweet, so we still prefer to just take a longer view point and watch and observe,” said Morganlander, a fund manager at Washington Crossing Advisors, which oversees more than $3bn in assets.
Gold is coming off a rally that spanned the last four months and pushed prices to a six-year high of $1,566.20 an ounce less than two weeks ago. That’s helped metals in the broader precious complex reach multi-year highs of their own.
Silver and platinum rallied three straight months through August, with silver nearing a three-year high and platinum topping $1,000 an ounce for the first time since early 2018. Meanwhile, palladium notched an all-time high last week. But the good times are slowing down, and some investors are starting to cash in. In the week ended September 10, hedge funds reduced their gold net-long position by 15% to 247,728 futures and options, according to US Commodity Futures Trading Commission data published on Friday. The holding, which measures the difference between bets on a price increase and wagers on a decline, reached a six-week low.
What’s interesting, though, is that those declines are not as pronounced as they could be given how prices have fared lately. The funds’ net-long holding is still near the record high of 290,709 contracts set a week earlier.
That trend also holds for exchange-traded funds: Assets in State Street’s SPDR Gold Shares have only slipped 1.7% since reaching a more than two-year high earlier this month. It’s a sign that at least some investors are taking the long view and betting that easy monetary policy will keep supporting the metal.
The European Central Bank said on Thursday it would restart quantitative easing. Meanwhile, money managers – and President Donald Trump – are eyeing the Federal Reserve’s key rate setting meeting scheduled for today and tomorrow. Economists surveyed by Bloomberg expect US central bankers will trim interest rates by a quarter percentage point next week, and again in December.
From 2008 to 2011, the Fed bought $2.3tn of debt, sending gold to a record that year.
“You’re seeing, on the whole, asset allocators keep a bit of gold in their portfolio just because we are getting some relatively volatile moves in wider markets, and gold is always a little bit more stable in that environment,” said Colin Hamilton, managing director for commodities research at BMO Capital Markets. “The wider trend is that you’ve still got central banks in easing.”
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