The flood of cash spurred investors including billionaire John Paulson to hold the metal as a hedge against inflation. Gold remains the best store of value in an uncertain economy, Elliott Management Corp. told clients even as the $21.8 billion hedge-fund firm founded by Paul Singer lost money on its position this year. Threadneedle Investments, a London-based fund with $131 billion in assets, remains bullish on gold as central banks stick with printing money to weaken their currencies and revive growth.
Some investors’ faith in the metal has waned as inflation fails to accelerate even as central banks add liquidity. Global holdings of the metal through exchange-traded funds slumped to the lowest since October 2011 after touching an all-time high in December. Buffett, the third-richest person in the Bloomberg Billionaires Index, said last year in his annual letter to shareholders that investors should avoid gold.
“If it went to $800, I wouldn’t be a buyer,” Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc., told reporters in Omaha, Nebraska, on May 2. “It just sits there, and you hope somebody pays you more for it.”
Money managers withdrew $1.67 billion from commodity funds in the week ended May 1, said Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Outflows from gold and precious-metals funds totaled $1.79 billion, he said.
Gold prices had the biggest two-day drop in more than three decades last month, and a majority of the 38 analysts surveyed by Bloomberg said the metal’s 12-year winning streak is over. While the hedge funds’ short holdings declined in the week through April 30, they are still more than triple the average since 2006, when the data begins. Goldman Sachs Group Inc. said April 23 the precious metal may slide to $1,390 in 12 months, and Deutsche Bank AG predicts a drop to as low as $1,050.
“There are no inflationary worries, and gold is responding to the global deflationary pressure,” said Jim Russell, a senior equity strategist in Cincinnati at U.S. Bank Wealth Management, which oversees about $110 billion in assets. “There are no catalysts for gold to rise at the moment.”