Hedge funds raised bullish gold wagers by the most since July and sold copper holdings as emerging-market turmoil boosted concern the global economy will slow and increased demand for precious metals as a haven.
Hedge funds’ combined holdings in gold futures increased to the most bullish since January on mounting concern that conflict in the Middle East will boost crude-oil prices, slowing economic growth and stoking inflation.
Billionaire hedge fund manager John Paulson, who told investors as recently as last month that they should own gold, cut his holdings in the metal by more than half as prices plunged into a bear market.
Hedge funds increased bets on lower gold prices after investors pulled a record $20.8 billion from bullion funds this year while BlackRock Inc., the world’s biggest money manager, said it’s still bullish.
Friday’s US jobs data managed to yield a lift in precious metals values this morning but the advance was itself significantly below expectations and it most certainly did not come at the expense of a notable cratering in the US dollar.
The biggest decline in gold since 1980 unfolded in recent hours and the rout extended into the morning hours on Thursday as the yellow metal fell yet another nearly $50 to touch the $1,702 mark overseas.
More gains in the metals ought not to be ruled out as the European debt turmoil still presents chain-reaction-like potential dangers and investors might wish to remain on the safe side. As such, we could see a second day of tandem dollar-gold gains.
Gold has remained robust despite the potentially negative short term implications for safe haven demand due to Bin Laden's murder, suggesting that market participants realize the global economy faces greater challenges.