Markets: Big golden gamblers

Hedge funds are gambling on a rise in the gold price. But think twice before joining in... even those who are mining the metal are sceptical.

So hedge funds are bullish on gold. Speculators have increased their net-long position by 4.1 per cent to 35,691 futures and options, Bloomberg News reports, citing US Commodity Futures Trading Commission data from July 9. Anyone wanting to jump on the gold bull bandwagon better think again. Those exploring and mining the stuff aren’t looking for any significant increase in gold prices. In fact they are battening down the hatches, trying to eke out as much efficiency in their operations as possible, convinced the gold price will be little changed from current levels for the next 24 months.

Monteray Mining Group chief executive Mike Edwards expects gold to trade at between $US1200 and $US1300 an ounce for as long as two years. At 0845 AEST spot gold was down 27 cents to $US1284.30 from yesterday, according to Bloomberg data. It is down 19 per cent in the last 12 months and 32 per cent from $US1900.23 on September 5, 2011.

For parties from central banks to hedge fund manager John Paulson, gold has not been a golden return. In fact, it has lost those long on bullion, billions. Gold miners are adjusting to this reality, albeit somewhat late. Newcrest, Australia’s biggest gold producer, plans to write off as much as $6 billion in the value of its assets. Barrick Gold, the world’s biggest producer, expects to write down the value of a Latin American project by as much as $US5.5 billion and is reviewing other assets for potential charges. AngloGold Ashanti, the world’s third-biggest gold miner, will write down as much as $US2.6 billion in the value of its assets. This takes gold mining writedowns to at least $US11 billion in the last two months, according to Bloomberg News.

Gold had its steepest quarterly drop in 90 years when it fell 23 per cent between April and June this year as bullion fell to a 34 month low. Don’t bet against it happening again. 

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