Responding to Trump uncertainty, investors divided over gold

By Luzi Ann Javier

Bloomberg

Gold seems to be splitting the investment community down the middle.

Money has been draining out of SPDR Gold Shares, the world’s largest gold-backed exchange-traded fund used by big institutional investors, since Nov. 11. But iShares Gold Trust, a smaller rival favored by individuals investing lesser amounts for themselves, has seen back-to-back weekly inflows.

Large mutual, pension and hedge funds are chasing better returns in rallying U.S. stock markets. But retail investors, including iShares Gold holders, are returning to gold amid renewed concern that President-elect Donald Trump’s protectionism will restrict global trade and growth.

Those concerns were shared by more than two-thirds of traders surveyed by Bloomberg News last month, who forecast prices will gain this year as political uncertainties drive demand for safe-haven assets, including bullion.

Gold futures rose as much as 0.5 percent, before settling little changed Tuesday at $1,185.50 an ounce on the Comex in New York. Prices have risen 5.4 percent since hitting a 10-month low on Dec. 15. People familiar with China’s plans said last week the nation is prepared to retaliate should Trump take punitive measures against Chinese goods and trigger a trade war between the two biggest economies.

Last week, investors pulled $307.1 million from SPDR Gold, while iShares attracted $80.8 million, according to data compiled by Bloomberg.

“It looks like the hot money is showing a real negative sentiment towards gold and it’s expressing that in GLD,” Eric Balchunas, an ETF analyst for Bloomberg Intelligence, said, referring to SPDR Gold by its exchange ticker. “Retail investors and advisers seem to be continuing their allocation to gold through these other vehicles,” including iShares Gold, he said.

Former Treasury Secretary Lawrence Summers last week said investors are far too sanguine about the risks of Trump’s policies, which analysts at Eurasia Group said could contribute to level of global instability.

Gold may rally to $1,300 at the end of 2017, according to the median of the 26 estimates by analysts and traders surveyed by Bloomberg News from Singapore to New York.

While the uncertainties are sending retail investors and overseas buyers to the gold market, institutional investors are unloading their bullion in favor of higher returns in U.S. equities, as the Dow Jones Industrial Average hovers near 20,000. Last week, $15 billion poured into equity ETFs, as $106 million was withdrawn from funds backed by precious metals, data compiled by Bloomberg show. Equities have rallied since Trump’s election to the presidency amid expectations of accelerating economic growth.

Even hedge funds and other large speculators who are required to report holdings to the U.S. government have been paring their bullish bets on gold since the middle of November.

Their net-long positions slid for an eighth straight week to 34,560 contracts in gold futures and options in the week ended Jan. 3, according to U.S. Commodity Futures Trading Commission data released three days later. That’s the smallest in almost a year.

“This is a shift from institutional investors that were using gold earlier in 2016, rotating out,” said Todd Rosenbluth, a director of ETF research at independent research firm CFRA in New York. iShares Gold “is perhaps longer-term money that moved in and is more likely to stay a little bit longer,” he said.

— Bloomberg

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