Hedge Funds, Central Banks Seeking Protection with Gold

With gold prices dipping in the past few months, here’s why some of the most prominent of these institutions took advantage of the buying opportunity.

gold prices

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In an interview with Kitco News, Phil Streible, senior market strategist of RJO Futures, shared his views on why some of the largest buyers of gold seem to be stockpiling the yellow metal despite a lack of overt volatility. Even though the latest batch of economic data that revolves around lower interest rates has held up, actions from big investors and central banks alike suggest that both could be preparing for a coming crisis.

This notion is supported by gold’s recent price pullback, which may have offered big buyers an opportunity to stock up after a major price spike this summer. As Streible noted, gold has a little more room to trend lower with major support at $1,425, meaning that these big investors could continue to take advantage of lower prices before gold bounces back to its major resistance at $1,550.

Speaking about the buyers themselves, Streible noted that Ray Dalio has been perhaps the most prominent figure in the gold market in recent weeks, having added roughly $1 billion of put options on the S&P Index. Dalio, the billionaire investor who manages Bridgewater Associates, the world’s best-performing fund, has long been an advocate of buying and holding gold, and has based much of the fund’s strategy around the yellow metal. A move like this could potentially indicate that Dalio and his team are seeing something that other investors aren’t and are making the most of an opportunity before a coming storm.

Another source of heavy gold demand has been central banks around the world, with various nations who were previously absent from the gold market raising eyebrows with their sudden multi-ton purchases of gold bullion. Last year set an all-time high record of gold purchases from the official sector, with the total year-end figure clocking in at 651 tons while most forecasters had previously expected a number closer to 300 tons. This year, many are expecting central banks to outdo themselves again, with early predictions placing the total gold purchases by central banks in 2019 above 750 or even 800 tons.

Streible thinks that there is little question that central banks are seeking protection and safety through these gold purchases. The analyst named the various trade wars currently taking place as perhaps the key reason why central banks are rebalancing their portfolios in favor of gold.

Streible also noted that, despite the U.S. dollar’s inverse correlation of gold, the greenback has pulled back alongside the yellow metal. Streible sees this as a result of lower interest rates that are pushing investors to take their money out of banks and move it elsewhere, adding that this is comparable to other fiat sell-offs during times of perceived currency weakness. Although the Federal Reserve appears to be holding a neutral view on the U.S. economy, Streible said that investors should look out for potentially disappointing trade data, scheduled for release next week.