Investors Boost Bullish Gold Bets as Egypt Turmoil Fuels Demand

Hedge funds are piling back into New York gold futures and options as turmoil in Egypt sent bullish bets on the metal to the highest since April 2010, government data show. Holdings in silver also increased.

Managed-money funds held net-long positions, or wagers on rising prices, totaling 145,846 contracts on the Comex as of Feb. 2, U.S. Commodity Futures Trading Commission data showed on Feb. 11. The holdings jumped 17 percent, after five straight weeks of declines.

Gold rallied 0.8 last week, the biggest price gain since December, as protests in Egypt forced President Hosni Mubarakto flee the country after 30 years in power. In January, the metal dropped 6.1 percent as an improving world economy eroded gold’s appeal as a haven investment. Prices have rallied for 10 straight years, touching a record $1,432.50 an ounce on Dec. 7.

“You’re seeing a renewed interest in gold from speculative money who put the brakes on the metal earlier this year,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock inChicago. “There’s turmoil in Egypt, and inflation is heating up. Investment advisers and money managers are ready to put their money back to work. People are more comfortable jumping back into gold after a correction.”

Gold futures for April delivery settled on Feb. 11 at $1,360.40, after rallying to a three-week high of $1,369.70 during the session.

Investments in exchange-traded products backed by gold fell to 2,019.4 metric tons as of last week, down 0.6 percent since January, when holdings plunged 3.1 percent, the biggest decline since April 2008, data compiled by Bloomberg show. ETPs trade on exchanges, with each share representing metal held in a vault. They accounted for 21 percent of investment demand last year, according to GFMS Ltd., a London-based research firm.

Silver Holdings

Bullish silver holdings by managed-money funds totaled 29,742 contracts, up 27 percent from the previous week and the highest total since November, CFTC data show. Silver settled Feb. 11 at $29.995 an ounce on the Comex, capping three straight weeks of gains.

This year, silver rose to $31.275 on Jan. 3, the highest in 30 years, before dropping as low as $26.30 on Jan. 28.

“We’re more bullish on silver than gold because of its industrial component,” said Barry James, the president of James Investment Research Inc. in Xenia, Ohio, which manages about $2.5 billion.

“After silver’s dipsy doodle, it’s creeped right back to where it started the year,” said James, who has reduced the fund’s holdings of silver and gold to about 2.5 percent from 7.5 percent in the fourth quarter. “We’re more neutral than bullish on gold and don’t expect it to pick up steam and race to a new record. The dollar will probably recover and show some strength.”

Managed-money positions include hedge funds, commodity- trading advisers and commodity pools. Analysts and investors follow changes in speculator positions because such transactions may reflect an expectation of a shift in prices.

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