Macro Hedge Fund Sights On Golden $400
Neil Behrmann
Precious metals dealers report unusual purchases of gold by macro Hedge Funds that actively deal in foreign exchange and bond and equity markets.
Gold has been defying conventional metal analyst wisdom as large hedge funds have built up sizeable positions in precious metals, crude oil and oil
products, base metals, cocoa and other commodities. Gold and silver are
leading the way as they generate most publicity and both have shifted to
higher ground with Funds aiming at an eventual assault on the $400 an ounce
barrier.
Illustrating the present power of the funds, dealers marked time in Asia and Europe on Labour Day. On Tuesday the price surged through $380 prior to profit taking. September is a crucial month as jewellers and consumers need to stock up ahead of the Christmas season. As opposed to caution early July when the market was weak, respondents of Marketpredict.net's latest poll are now much more bullish. This time round members of a twelve person panel are following an upward curve and the average prediction for the spot price of gold is $378 by December and $392 in September 2004, silver $5.26 and 5.30 and palladium $209 in three months. Several respondents expect gold to top $400. On average, according to details of the poll MarketPredict.net, traders and precious metals analysts are bearish about platinum expecting it to fall about 4 per cent by the end of the year and bullish about palladium.
Pivotal price points
The pivotal points for gold are first $380 and then $390 an ounce. If
sufficient momentum carries the metal through the first barrier, options
delta hedging will take place and the price could test $390 and then $400.
The lower support level is $365. Silver, platinum and palladium are likely
to follow gold. The big question - when do the Funds take sizeable profits?
Physical demand in Asia has evaporated and scrap supplies will increase at
present price levels. More and more metal will have to be absorbed by Funds
to keep the momentum going. The US Commodity Futures Trading Commission showed that Futures and Options bull positions on COMEX, the New York exchange, amounted to 13.7 million ounces on August 26. Of this amount 10 million were in the hands of hedge and managed futures funds, some 6 million ounces higher than their bull positions in the first half of August. On a single day last week, gold Futures and Options open positions on the Exchange surged by almost 19,000 contracts to a record 262,000 contracts, equivalent to more than a quarter of normal annual gold demand . Fund exposure to all commodities is extensive.
Central bank gold sales agreement the key
A surprise event could cause steep speculative sales of gold and other
commodities. Much will depend on the performance of the US dollar and
whether European Central Banks at the coming annual International Monetary Fund meeting decide to maintain a gold sales agreement limiting sales to around 13 million ounces a year. Speculators, dealers and analysts are banking that the accord will remain unchanged. But Central Banks are wary of the gold price's psychological effect on inflation expectations. So they may decide to increase the sales limit. The market would be taken by
surprise and tumbling precious metals quotes would filter into other
commodity markets. At these heady heights and with the power temporarily in the hands of Hedge Funds, gold and commodity markets are on a roller
coaster. Consumers are fretting while miners are beaming.
3 September 2003
Neil Behrmann, Editor
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