Gold’s biggest rally in almost four decades has further to run as weak economies and teetering equity markets drive investor demand for the metal, according to Citrine Capital Management LLC.
The hedge fund is “bullish overall on gold because the global economy is pretty poor with China as an issue,” Paul Crone, founder of Citrine, said in an interview. “Gold could go as high as $1,400 an ounce,” or 11 percent above Wednesday’s closing futures price, he said.
Gold advanced the most since mid-March on Friday after data showed U.S. employers created the fewest jobs in almost six years, casting doubts on Federal Reserve’s intentions to raise interest rates and boosting the metal’s appeal as a store of value. Bullion has climbed 19 percent this year, the best start since 1979, amid concerns over China’s economy and equity-market gyrations.
If the Fed doesn’t hike rates in June or July, that will give gold the impetus for the next leg higher. The odds of a Fed move by July were at 18 percent Thursday, down from 54 percent at the start of last week, Fed funds futures show.
“The macroeconomic outlook is weak and the potential for recessions in some economies remains high,” Crone said. “China in our view is much worse than people continue to think. We remain concerned that there will be lots of bankruptcies in China.”
Investors poured about $9.4 billion into SPDR Gold Shares this year, the most of all the exchange-traded funds tracked by Bloomberg.
Billionaire investor Stan Druckenmiller said he wagered on gold after unprecedented stimulus by central bankers led to “the absurd notion of negative interest rates.” Hedge-fund manager David Einhorn says “counterproductive monetary policies” mean prices are headed higher. In the first quarter, about 1,100 fund managers including billionaire George Soros bought more than 78 million shares of Barrick Gold Corp., the world’s biggest producer, company filings show.
New York-based Citrine is one of the few surviving hedge funds investing exclusively in metals, alongside London-based Red Kite Group. Galena Metals Fund, the flagship fund owned by trading house Trafigura Pte., closed last year due to “difficult conditions prevailing on commodities markets.”
Citrine is preparing to start marketing again as interest in commodities appears to be picking up, with the “optimal amount” for a metals-based strategy at about $400 million, according to Crone.
Among industrial metals, zinc is the “brightest of the bunch” because of prospects for tighter supply. He is less bullish on other metals, saying he expects the lows of the year for copper and aluminum toward the end of the third quarter and into the fourth.
“Our overall metals-market view remains negative,” Crone said. “However, short-covering rallies will be violent and seen as selling opportunities in some cases.”
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