[So here we are again-like in 2008 with the world in crisis–and gold is well under control-hanging by a thread to a paltry 5.60 gain…let’s face facts, hasn’t gold really been de-fanged as the big bad safe-haven asset? The “gold is a relic of a bygone era” campaign of the past 10-20 yrs has really been effective…about the only gold-bug retort left is “then why are countries buying and hoarding gold?”…good question!]
Focus on Funds
News and analysis on ETFs, mutual funds and hedge funds.
January 19, 2016, 3:45 P.M. ET
Gold Prices Ripe for ‘Mega Short Squeeze,’ Fund Manager Says
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By Chris Dieterich
Defensive buying has launched gold prices and exchange-traded funds to a strong starts in 2016. Have the fund sellers finally had enough?
Gold futures and the SPDR Gold Shares (GLD) are both up by about 2.5% so far this year (though both are slightly lower in Monday trading). Money is starting to flow back into gold ETFs, however incrementally. Nikolaos Panigirtzoglou at J.P. Morgan notes that gold ETFs took in about $900,000 during the week ended Jan. 13, the most recent week available. For the sake of comparison: Some $3.6 billion was pulled from gold ETFs last year, representing about 7.4% of total assets under management..
John Hathaway, manager of the $842 million Tocqueville Gold Fund (TGLDX), which owns precious metal stocks, says that gold bears could wind up with egg on their faces should the years-long trend of pulling money out reverse in earnest. He explains (or read the whole 7,000-word treatise here):
“The seemingly endless supply of notional gold coming from the sellers of synthetic is the strongest explanation for the extended, and in our view overdone, decline in the gold price from peak levels of 2011.
Quantities of synthetic gold sold are created out of thin air, with almost no connection to physical metal. The negative investment thesis seems to rest upon confidence that central bankers, and the Fed in particular, will steer a course away from radical monetary experimentation that will return to a normal structure of interest rates and robust economic growth.
The fact that these expectations have not been fulfilled in the nearly nine years since the initiation of zero interest rates, notwithstanding the recent 25-basis-point Fed rate hike, leads us to believe that investor credulity in central bankers may be stretched about as far as it can go.
The very popular short exposure in gold is, in our opinion, vulnerable to a trend reversal/mega short squeeze. This would occur if gold ETF assets under management (AUMs) were to rebuild or if holders of COMEX futures were to stand for delivery in a big way.
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