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Gold Holdings Surge 25% Faltering Central Bankers’ Wisdom

Gold Holdings Surge 25% Faltering Central Bankers’ Wisdom
There is pace in the great gold rush of 2016. With investors taking advantage of lower prices over the past two weeks to enlarge stakes on rising concern about central bank policy making worldwide, holdings in exchange-traded funds have now surged by a quarter.
After bottoming at a seven-year low in January, according to data compiled by Bloomberg, the holdings have increased to 1,822.3 metric tons, the most since December 2013. ETFs swelled 63.2 tons, rising every day in the past two weeks as prices lost 1.6 percent.
Amid rising concern over negative rates in Europe and Japan and whether the Federal Reserve will be able to tighten further, gold is the best-performing major metal this year after silver. Billionaire hedge fund manager Paul Singer has said gold’s rally may just be beginning. According to the World Gold Council, the demand for gold jumped to the second-highest level ever in the first quarter. according to Bernard Aw, a strategist at IG Asia Pte, based on a structural shift in investment demand, investors are being driven to gold.
“Firstly, the negative interest rate environment and quantitative-easing policies are reducing the pool of suitable investment options, and making gold less costly to hold,” Aw said by e-mail on Monday. Aw added that prevailing rates remain very low even though there may be more U.S. rate hikes in the pipeline.
“Second, lingering fears of competitive currency devaluations and potentially fresh bouts of market volatility encourage safe-haven demand,” Aw said.
Amid concern about the strength of the U.S. recovery investors have been scaling back expectations of further increases after the Fed raised rates in December.  According to Bloomberg data, down from 75 percent at the start of the year, the chances of a hike at next month’s policy meet are just 4 percent. Higher U.S. borrowing costs typically hurt gold prices while boosting the dollar.
Gaining to $1,303.82 an ounce on May 2, the highest price since January 2015, Bullion for immediate delivery has rallied 21 percent this year. According to Bloomberg generic pricing, the metal traded at $1,281.43 an ounce in Singapore.
If investors’ confidence in central bankers’ “judgment continues to weaken, the effect on gold could be very powerful,” said Singer -- whose firm Elliott Management Corp. oversees about $28 billion -- told clients in a letter last month.
While the bull market in stocks is exhausted, gold is his largest currency allocation said Stan Druckenmiller, the billionaire investor this month.
Some countries’ banks -- notably in China, Russia and Kazakhstan -- have also been substantial and consistent buyers even while central bank policies may have contributed to gold’s gains this year. Compared with 566.3 tons in 2015, according to Alistair Hewitt, head of market intelligence, the World Gold Council estimates that nations are expected to buy 400 to 600 tons this year.
As prices advanced and expectations for U.S. rates shifted, even some the of leading bullion bears have had to backpedal this year.

Christopher J. Mitchell

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