Saturday, 22 August 2015

Moves by two major funds after RMB devaluation may spur gold prices

The recent depreciation of the renminbi may be the main reason that two global major hedge funds, Soros Fund Management and Standley Druckenmiller, have begun betting on gold, reports Shanghai's China Business News.
Soros Fund Management bought 1.9 million shares in Canadian gold miner Barrick Gold and kept its stake in Market Vectors Gold Miners ETF on Aug. 14. Standley Druckenmiller, who formerly worked for George Soros, bought 2.88 million shares of the world's largest gold ETF SPDR Gold Trust by the end of the second quarter.
Their moves defied the selling trends among investors as Paulson & Co sold 1 million shares in SPDR Gold Trust in the second quarter this year after holding it unchanged for six months. John Paulson, a long-time gold bull, also cut his fund's gold ETF holdings during the same period, according to Financial Times.
Gold prices have been in decline over the second quarter and dropped to their lowest level in five years at US$1,072 per ounce on July 20. Demand for the precious metal also fell to its lowest level in six years.
However, the two hedge funds' gold purchases suggests gold might have touched bottom and is poised to rebound, China Business News said. Foreign exchange analysts cited by the paper said the unexpected renminbi depreciation has shocked the global market and forced some funds to seek refuge. There was hardly anything favoring gold before China's central bank announced its new exchange rate policy, Dan Denbow, a money manger at the US$700 million USAA Previous Metals & Minerals Fund, told Bloomberg.
The People's Bank of China on Aug. 11 announced changes to the way the daily reference price, or mid-price, of the yuan is set, saying that it would take the closing price on the spot market a day earlier into greater consideration.
HSBC's latest report said the downturn in gold will lead to resurgence. The bank predicted that gold prices will surge to around US$1,200-$1,225 per ounce, 10% higher than its current value, by the end of this year.
The report also said gold prices will recover since the financial market anticipates a rate hike from the Federal Reserve and is less likely to be affected when the hike takes place. The bank also predicted that the hike will also spur gold prices and a short sharp covering rally after market sentiment reverses. China, India and other major gold consumer countries will ultimately be drawn by the low gold price, said HSBC.
The bank also said the PBOC has been increasing its gold holdings, which reached 1,658 tons by the end of June, and that this will be a positive influence on the market.

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