When it comes to gold, the investment community suffers from a kind of financial Bipolar Disorder. It swings back and forth, from a pure lust for gold… to unmitigated contempt. Currently, the yellow metal is back in the good graces of hedge fund managers, among other institutional investors. But as recently as six months ago, a gold investor could do nothing right — a pariah amongst pundits and saints.
Much of the problem has to with the fact that gold is a boring investment. It stubbornly retains its value, and it doesn’t pay interest. Sure, there’s all that past exciting stuff about gold tucked away in Egyptian tombs, and sunken treasures off the coasts of the Americas. But unlike a company stock, gold doesn’t come with an exciting story. There’s none of the thrill of recently developed products, or a dynamic new CEO on board. Let’s face it — gold is as uninspiring as a park bench. It just sits there in our vaults; it’s done nothing for us lately.
But suddenly gold is back on its manic upswing again. Presumably this has to do with a fear that the securities markets, for all their stellar success, could come crashing down. And what better commodity than gold to stabilize a shrinking stock portfolio? According to Bloomberg, money managers added to their net-long gold positions for a fourth straight week through July 1st. Moreover, their holdings in gold ETFs are climbing at a pace unseen in the last two years.
The debacles in Iraq and Ukraine will certainly not improve soon — they foreshadow an investor need for a safe haven.
Professional investors are acutely aware that gold is now showing uncommon strength, in an economy that is showing signs of improvement. The debacles in Iraq and Ukraine will certainly not improve soon. They continue to foreshadow an investor need for a safe haven. As Jeff Greenblatt points out in Futures Magazine, no one could predict that one of the worst terrorist organizations in the world, ISIS, would take over the Iraqi government.
As gold prices climbed by 9.5%, gold funds increased by $4.6 billion. Clearly this is a bullish turnaround, and not a bleep on the radar. One of the signs of this renewed bull market is that the rest of the precious metals complex is following suit. Silver at about $21.00 per ounce, and platinum at about $1,500 per ounce, are showing strong signs of recovery. Palladium though is the star of the show. It has experienced its longest rally since 2000. The need for palladium increases for its an anti-pollution kick start in the catalytic converters of automobiles, at the same time that supplies decrease in South Africa. In other words, the entire sector of precious metals is now an exciting place for money managers to park funds.
Evy Hambro, Black Rock Portfolio Manager of World Mining Fund, in an interview on Bloomberg TV yesterday, discussed his clients’ growing concern with inflation. Gold’s traditional role as a hedge works well now, as investors regain confidence in its upward price trajectory.
For the foreseeable future, money managers have returned to their manic gold phase. If you never departed from this phase in the first place, congratulate yourself. If, on the other hand, you’re following the lead of the returning manic gold investors, know that you’re in good company. In either case, now’s the time to add gold to your investment holdings.