Gold Futures Shoot Up to Nearly 5-Year High

ETF Securities reports largest jump in gold speculative net long futures as bargain hunters step in

China Gold Imports from Hong Kong. Source: Thomson Reuters GFMS et al.Gold futures are now seeing their largest jump in speculative net long positioning due to Federal Reserve Chairman Ben Bernanke’s views on a third round of quantitative easing and the announcement of a 100 billion-euro lending plan for Spain, ETF Securities said Monday in its Precious Metals Weekly report.

 “Although Fed Chairman Bernanke’s testimony to the Congressional Joint Economic Committee last week was noncommittal on the potential for QE3, bargain hunters appeared to take price weakness as an opportunity to accumulate net long gold futures positions at the fastest pace since December 2008, surging 28%,” ETF Securities reported.

In addition, the eurozone’s weekend announcement that it has agreed to lend Spain 100 billion euros, or $125 billion, to rescue its collapsing banking system contributed to the rise in gold futures in line with a rally in other risk assets on Monday morning, said report authors Martin Arnold and Nicholas Brooks.

Net longs in gold still remain near end-2008 lows despite the sharp lows, although China gold imports have surged beyond 65% in April to 103 metric tons, a record monthly level, according to the Hong Kong Census and Statistics Department.

Malcolm Gissen, a gold bull and registered investment advisor who co-manages the San Francisco-based Encompass Fund (ENCPX), confirmed that both gold futures and gold sales in China are skyrocketing.

“Gold prices look attractive now,” said Gissen, who had already read the ETF Securities Precious Metals Weekly report, in an interview on Monday with AdvisorOne. “Prices are comparatively low, and there are many factors that favor higher gold prices ahead. We’re seeing national governments buying more gold than they have over the last several years. So far this year, for example, we’re seeing Russia and Mexico buying gold. As countries become concerned about the U.S. dollar and economy long term, I believe that we’re going to see more buying of gold commodities.”

A devaluation of the dollar as well as the euro also is in the cards, Gissen predicted, and as people have less confidence in these currencies, they will tend to invest in gold.

The U.S. will see gridlock after the elections unless the Republicans make a clean sweep in the presidency with Mitt Romney along with both houses of Congress, he added. “We’re going to see terrible gridlock, and that’s a positive for gold. I also think we’re going to have higher inflation ahead in the United States, which is also a positive for gold.”

As for China’s April gold import rise of 65% from March, Gissen noted that the Chinese government is allowing its citizens to buy more gold in more different places than in the past.

“China has been loosening up regulations to allow its people to buy gold,” he said. “As China develops a middle and upper investing class, those people want to hold gold. As a result, last year China overtook India as the No. 1 consumer of gold. Historically, Indians as a society have placed great value on gold, which made them the top consumers in the world, but that is no longer the case.”

Read PIMCO’s Gross: Focus on Short-Term Securities, QE3 Is Coming at AdvisorOne.

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