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According to government figures from last week, hedge fund managers have increased their long-only position in US futures and options by 12% from a week earlier, the most since June.
Meanwhile, data compiled by Bloomberg indicates exchange-traded fund investors have bought bullion for the past six sessions, following months of sales. SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings rose 0.4% to 1,028.36 tonnes on Friday.
Prices have rebounded from lows in March as the dollar retreated, and the US Federal Reserve signaled it will keep interest rates low, even with signs of rising inflation.
Benchmark US 10-year Treasury yields slipped again to their lowest in nearly a week, reducing the opportunity cost of holding non-interest bearing gold.
Expectations for further increases in consumer prices could start to boost demand for gold as a hedge, analysts say. Bullion is traditionally seen as a hedge against rising inflation.
“Following months of outflows, returning speculative interest could ultimately spark a breakout in gold”, TD Securities analysts led by Bart Melek said in a note to Bloomberg.
The TD analysts expect the period of high inflation, partly reflected in last week’s consumer and producer prices reports, to prove transitory, but “there remains a substantial amount of uncertainty surrounding the path for inflation.”
“Nonetheless, considering that gold is underperforming against periods of high inflation, we see substantial upside risks for the yellow metal,” they concluded.
Echoing a similar sentiment, Ole Hansen, head of commodity strategy at Saxo Bank, told Reuters:
“Higher than expected (US) consumer price inflation and weaker retail sales was really the potent combination for gold.”
“Higher inflation has been the key source of inspiration for renewed demand that we have seen in gold, especially during the last couple of weeks,” Hansen added.
(With files from Bloomberg and Reuters)
