Bears Miss Gold’s Best Rally Since June as Analysts See Declines

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Investors stayed bearish on gold before its biggest rally since June, missing out on what some analysts predict could be the last of the good times for bulls.

Bullion jumped last week after China unexpectedly devalued its currency, roiling global markets and boosting the appeal of haven assets. Still, some of the metal’s best forecasters see the price gains fading. Billionaire hedge-fund manager John Paulson disclosed on Friday that he cut his holdings in the world’s biggest gold exchange-traded product for the first time in two years last quarter.


Money managers have been net-short on gold for four straight weeks, after turning bearish in July for the first time in U.S. government records going back to 2006. Prices are heading for the longest run of quarterly losses since 1997.

“Before the move from the Chinese government, you couldn’t find anyone who could make a bullish case,” said Dan Denbow, a portfolio manager at the $700 million USAA Precious Metals & Minerals Fund.

Short Position

On the Comex, gold futures gained 1.7 percent last week to $1,112.70 an ounce in New York, the biggest weekly gain since mid-June. The MSCI All-Country World Index of equities dropped 0.4 percent, and the Bloomberg Dollar Spot Index lost 0.3 percent. The Bloomberg Commodity Index dropped 0.1 percent, a sixth straight loss and the longest slump since January.

Speculators held a net-short position in gold of 2,794 futures and options contracts as of Aug. 11, according to Commodity Futures Trading Commission data released three days later.

Investors are snubbing precious metals as a robust U.S. economy pushes the Federal Reserve closer to raising interest rates, which curb the appeal of bullion because it doesn’t pay interest. Low inflation, a rally in equities and a stronger dollar have also weighed on prices, which in late July reached the lowest since 2010.

While money managers have stayed net-bearish, they’ve trimmed their bets on price declines for three straight weeks, the longest streak since February.

Currency Wars

The yuan drop could prompt other nations to take similar actions. Vietnam widened the trading band on its currency on Wednesday, underscoring the risk of competitive devaluations. That would be boon for gold because investors would seek out a store of value, said Adrian Day, president of Adrian Day Asset Management in Annapolis, Maryland, which oversees about $145 million.

“There’s a sentiment that’s extremely negative, so any rally can be reasonably strong,” Day said by telephone. “What China has done is initiate another battle in the ongoing currency wars. In these wars, there can only be one winner, which is gold.”

Futures fell in the final two days of last week after China quelled concerns over broader currency wars with verbal support for the yuan.

Best Forecasters

Bullion will probably resume this year’s declines as concerns over the yuan devaluation keep fading, according to Oversea-Chinese Banking Corp.’s Barnabas Gan, the most-accurate forecaster for precious metals last quarter based on rankings compiled by Bloomberg. Analysts at Itau Unibanco Holding SA and Barclays Plc also predicted the recent rally will fizzle.

Paulson, once one of the best known gold bulls, is backing away from the metal for the first time since 2013. His firm, Paulson & Co., cut holdings in the SPDR Gold Trust by almost 10 percent in the three months ended June 30 to 9.23 million shares. The move came after the investor kept his stake unchanged for seven straight quarters.

“There’s not much to get excited about on the long side,” said Walter “Bucky” Hellwig, who helps manage $17 billion as a senior vice president at BB&T Wealth Management in Birmingham, Alabama. “Low inflation and the strong dollar take the luster off gold as an investment.”


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