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Fund managers bought the most gold since October last year before the Fed announcement last week

-- Posted Monday, 23 September 2013 | | Disqus

The gold price has slipped back from the bounce that followed the Fed’s surprise decision not to wind down on QE money printing last week. And yet recent price weakness has anyhow been attracting some of the smartest investors back into the precious metal.

Money managers added $850 million to gold funds in the week ended September 18th, the most since last October, according to Massachusetts-based EPFR Global that tracks money flows. Total inflows for all commodity funds were $1.2 billion, the most since last November, leaving gold the stand out choice before the Fed announcement last week.

Seasonal price uplift

Why should fund managers be buying gold now? Party this is a matter of watching the seasonal price pattern. Gold tends to have most of its price gains of the year in the autumn months as Indian religious celebrations occur at this time and this is well known by professional buyers.

They are also great followers of commodity cycles and the gold correction that started in 2011 at $1,923 an ounce is looking long in the tooth. The 12-year bull market in gold is also actually not broken so there is no reason to think very much lower prices are in prospect, although a big sell-off in global financial markets this autumn would likely retest the recent lows.

Contrarians from Dr. Marc Faber to Charles Nenner have been advising the purchase of gold in this market dip while warning that global stock markets look very high and ripe for a correction. Sometimes fund managers do not behave like a herd of lemmings.

Fed statement

Still they will not be pleased by the fall in gold prices again this week as global financial markets try to assess what the long term implications of the Fed statement last week might be. Revelations that the vote to hold QE steady was close and due to poor economic data – as ArabianMoney suspected – may reignite market nerves about a coming reduction in QE by the Fed.

In that case it was all the more odd that fund managers bought gold last week before the non-announcement because money printing ought logically to be good for gold as the money that nobody can print though that has clearly not been the case since April 2011.

These are perplexing times for gold bugs. This asset class ought to be leading, not lagging at a time of money printing. But you could hardly say gold is in a bubble now while stocks look ripe for a 30-40 per cent correction like bonds this summer.

-- Posted Monday, 23 September 2013 | Digg This Article | Source:

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