Investors are warming to gold as markets are whipsawed by concerns about slowing global growth.
As US equities tumbled in December, the holdings of gold-backed exchange traded funds rose by 2.25m ounces, according to Scotiabank, helping to drive the price of the metal to six-month highs of more than $1,290 a troy ounce.
That forced funds that had placed speculative wagers against gold in the US futures market to cover their positions, sending the market from a net short to a net long position — where bullish wagers outnumber bearish bets — for the first time since June last year.
Analysts believe there has been a further increase in bullish bets as well as short covering, although this has yet to be reflected in official data. Weekly reports compiled by the US Commodity Futures Trading Commission are not being published because of the partial government shutdown.
“A combination of rising open interest on Comex and the gold price going up tells me that new longs are coming into the market,” said John Reade, chief market strategist at the World Gold Council.
For much of 2018 gold was out of favour, hit by the strength of the dollar and interest rate rises in the US, which dented the appeal of assets such as the precious metal that offer no yield. That saw gold trade as low as $1,174 in August in spite of rising geopolitical tensions and the fallout from US-China trade war.
Sentiment towards gold began to improve towards the end of the year as US stock markets fell and volatility increased. That has continued into 2019 amid speculation a slowing US economy will ultimately force the Federal Reserve to stop raising interest rates.
Analysts say gold can continue to shine as long as markets remain volatile — a fact underlined late last week after a better than expected US jobs report saw equity markets bounce.