Hedge Funds Bullish On Gold In Midst Of Greek Turmoil

Jan 6 2015 | 6:32am ET

By Lydia Mulvany (Bloomberg) -- Hedge funds are stepping back onto the gold bandwagon as political turmoil in Greece and government actions in Asia helped send prices to their biggest monthly advance since June.

Bullish wagers on the metal increased for the first time in three weeks and have more than doubled since mid-November, U.S. government data show. Short holdings dropped for the sixth week in seven. Bullion rose for a second straight month in December.

While cheap oil has kept inflation in check, gold’s appeal as an alternative asset got a boost on Greek opposition to austerity measures that may prompt the country’s exit from the euro area. China has lowered interest rates and waived some bank lending requirements to help spur growth, while Japan expanded stimulus measures. Bullion prices are up 7.2 percent since touching a four-year low in early November.

“People are running to gold because it’s the last haven after the dollar,” said George Gero, a New York-based precious metals strategist who helps manage $500 million at RBC Capital Markets LLC. “The problems in Greece especially and the possibility, according to the Germans, that they’re preparing for Greece to leave the euro, there’s geopolitical turmoil.”

Net-long positions rose 5.7 percent to 98,391 futures and options in the week ended Dec. 30, after dropping 11 percent in the previous two weeks, according to U.S. Commodity Futures Trading Commission data published Jan. 5. Short wagers slid 8.2 percent.

December Rally

Bullion futures advanced 0.7 percent last month and traded at $1,212.20 an ounce by 4:14 a.m. on the Comex in New York. The Bloomberg Commodity Index fell 7.6 percent in December, the sixth straight monthly decline, while the Bloomberg Dollar Index rose 2.2 percent, the sixth straight gain. The MSCI All-Country Index of world equities slid 2 percent in December.

As a traditional haven in times of turmoil, gold got a boost from concern that Greece may leave the euro area, which sent the European currency to its lowest against the dollar since 2006. Prime Minister Antonis Samaras failed to secure backing for a presidential candidate, leading to snap elections in three weeks.

The opposition Syriza party, which leads in the polls, is campaigning against austerity measures imposed as a condition of Greece’s two bailouts after the financial crisis. Samaras says a Syriza victory would lead to default and the country’s exit from the euro. Gold priced in euros climbed 12 percent last year and this week reached the highest since September 2013.

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