Hedge funds cut gold positions as Goldman lowers outlook

‘Shattering’ Confidence

Bullion’s declines are “shattering” investors’ confidence and the metal will probably fall to $1,150 in 12 months, Credit Suisse’s head of commodity research, Ric Deverell, said in a report June 25. Morgan Stanley lowered its 2014 outlook by 16% the same day, citing waning demand for haven assets. U.S. consumer sentiment held close to a six-year high in June, while economic confidence in the 17-nation euro area improved more than forecast, separate reports showed last week.

Even if the Fed slows asset buying, countries including Japan and China may continue to stimulate their economies, boosting demand for gold as a hedge against inflation, according to Martin Murenbeeld, the chief economist at Toronto-based DundeeWealth Inc., which manages about C$100 billion ($95 billion) of assets.

Japan is making monthly bond purchases of more than 7 trillion yen ($70.6 billion). Bullion priced in yen reached the highest since March 1980 in April. The People’s Bank of China will work to maintain market stability, Governor Zhou Xiaochuan said June 28. The country’s benchmark money-market rate fell the most since 2011 that day. Bullion rose 38% since the end of 2008 as policy makers printed money on an unprecedented scale to boost growth.

‘Money Floating’

“With all the easy money floating and some economies continuing to stimulate, we will see inflation, and gold will find favor at some point,” Murenbeeld said. “Gold is going through a mid-cycle correction, but the fundamentals for higher prices remain intact.”

Money managers pulled $2 billion from gold funds in the week ended June 26, according to Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Total outflows from commodity funds were $2.68 billion, according to EPFR.

Bullish bets on crude fell 11% to 232,194 contracts, the biggest drop since February, CFTC data show. Platinum holdings slumped to the lowest since August as prices fell for a fifth straight month, the longest slide since 2001. Palladium wagers dropped the most in 11 weeks. The metal tumbled 12% in June.

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