Gold Resumes Rally as ETP Assets Swell Amid Demand for Haven

  • Bullion's negative correlation to U.S. equities strengthens
  • Holdings in gold-backed funds reach highest since May

Is It Time to Start Shorting Gold?

Gold futures advanced for a second day, extending a 2016 rally as U.S. equity declines added to demand for haven assets.

Bullion’s negative correlation with the Standard & Poor’s 500 Index of shares has increased to near the strongest inverse relationship since April. Investors are adding their holdings of the metal through exchange-traded products as they seek protection from wider market volatility. Gold futures are up 16 percent in 2016, the most among the 22 components of the Bloomberg Commodity Index.

Gold has climbed amid signs of weakness in the global economy and sliding commodity prices. The S&P 500 fell Thursday, extending this year’s loss to about 6 percent, after Federal Reserve minutes released Wednesday showed U.S. policy makers were concerned that risks to the economic outlook have worsened. Fed Bank of St. Louis President James Bullard said recent financial-market turmoil and a further decline in investors’ expectations for inflation have given the central bank scope to delay interest-rate increases, boosting the appeal of gold as a store of value.

“The Fed seems to be really concerned on the downtrend in equities, and they seem to be willing to be very cautious about doing any rate increases,” Fain Shaffer, the president of Infinity Trading Corp. in Indianapolis, said in a telephone interview. “That’s beneficial for gold.”

Gold futures for April delivery advanced 1.2 percent to settle at $1,226.30 an ounce on the Comex in New York. Prices rose 0.3 percent on Wednesday. The metal has posted three straight annual declines.

“Our analysis tells us that we’ve reached the bottom,” Leon Teicher, chairman of Continental Gold Inc., said Thursday in interview in Cartagena, Colombia. “We think the price will go up because of many not only circumstantial factors but also historical statistical factors.”

Assets in bullion ETPs have risen for five straight sessions to 1,601.1 metric tons, data compiled by Bloomberg show. That’s the highest since May.

Earlier losses for producers were also erased. The Philadelphia Stock Exchange Gold and Silver Index rose 5.1 percent, and is up 36 percent this year. Barrick Gold Corp., the world’s largest producer of the metal, reported better-than-expecting results on Wednesday and said it intends to keep debt in its crosshairs with a plan to cut at least $2 billion this year. Shares of the company increased as much as 6.8 percent in Toronto.

Silver futures also rose on the Comex. Platinum and palladium dropped on the New York Mercantile Exchange.

Before it's here, it's on the Bloomberg Terminal.