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Investors Rushing for Golden Life Rafts

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Hedge funds are betting on gold, boosting gold futures and options to the highest level since last November, as investors scramble for golden life rafts.

Gold has advanced by 11%  this year, and investors seem to think the gold bulls will continue to run, according to a Bloomberg report. In addition to betting up futures, investors are also loading up on the yellow metal through exchange-traded funds (ETFs). They poured $487 million into SPIDR Gold Shares last Wednesday. That represented the largest daily inflow into the top gold bullion ETF in seven months. According to Bloomberg, a weakening dollar and rampant uncertainty are driving investors into the safe haven of gold.

“Gold is shining bright as the dollar trades near the lowest since November, lifting the appeal of alternative assets. At the same time, escalating tensions between the US and North Korea have boosted demand for a haven, while delays in implementation for President Donald Trump’s campaign promises to cut taxes and pursue a pro-growth agenda are clouding the outlook for earnings.”

As Comerica Asset Management Group chief investment officer Peter Sorrentino put it, investors are scrambling to escape a potentially sinking ship.

“There’s an appetite for storehouses of wealth at this point. Rather than run the risk of having your dollars eroded on a relative basis, you can use gold as a life raft to sort of avoid a sinking ship.”

Geopolitical uncertainty and safe haven buying are certainly a large factor in the rush to gold, but a Barron’s recently reported, cracks in the economic narrative have also raised concerns. Despite all of the jawing about a healthy US economy in the mainstream media, there exist troubling signs pointing to a potential slowdown.

“Weaker-than-expected US employment data for March sparked worries that economic expansion might be sputtering. Consumer prices in March notched their first monthly decline since January 2010, another sign the economy might have hit a soft patch. Weaker-than-expected growth would undercut the case for the Federal Reserve to raise interest rates at a faster pace this year. That’s good news for gold, which struggles to compete with yield-bearing investments when borrowing costs rise.”

The Barron’s report also echoed concerns that President Trump may not be able to advance his agenda of tax cuts, health care reform, and infrastructure spending, saying there is a growing sense his legislative agenda has “bogged down.”

George Gero, managing director at RBC Capital Markets, said all of these factors are building a “wall of worry,” driving investors into safe havens like gold and silver.

And investors aren’t just looking at futures or buying into gold ETFs. There is also a surge in demand for physical metal in Europe, according to Bloomberg.

Are ETFs a substitute for physical gold in a crisis? Learn more here.

“There are still doubts over where the U.K.’s post-Brexit economy is heading. In France, a presidential election runoff is scheduled for May 7 and candidates are stressing their commitment to fight terrorism after the killing of a policeman on the Champs-Elysees in Paris last week. Demand for gold coins is surging in the nation, with CoinInvest selling more than 1,000 ounces on Friday. That’s up from typical sales of 200 to 300 ounces, according to Chief Executive Officer Daniel Marburger.”

 Bank of America head of commodities research Francisco Blanch said he expects investors to continue to look to gold as a hedge in these uncertain times.

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