Two major US investment banks announced on Thursday that they had liquidated hedging positions in gold. The news comes in the wake of a pronounced weakness in the price of gold.
Gold Price Slides
Yesterday, Thursday, the price of gold fell somewhat more sharply below the 1,500 US dollar mark. This morning at 10:45 a.m. the gold ounce on the spot market only cost 1,466 US dollars. This was equivalent to 1,328 euros. According to a recent article by Bloomberg News, strategists from the US major banks JP Morgan Chase & Co. and Citigroup Inc. have parted with gold and investors have advised the same.
Gold positions sold off
The report specifically states: “The asset allocation team of JPMorgan Chase & Co., including Marko Kolanovic, Nikolaos Panigirtzoglou and John Normand, has stated that it has dissolved its gold hedge and now recommends underweighting gold. Previously, the recommendation had been “overweight”. Citigroup strategists, including Jeremy Hale, also announced yesterday, Thursday, the abandonment of a long position in gold. It should be clear that both declared positions are “paper gold”, i.e. gold derivatives such as futures, options or swaps.
Banks are betting on more risk
The article goes on to say that the explanation came in the midst of the “worst week” for gold since May 2017, with the gold price falling 3 per cent to $1,468 an ounce by the close of trading yesterday, Thursday, from last Friday. In a Thursday note, JP Morgan presented the following arguments as justification for wanting to take more risk again: “Signs of a cyclical recovery, a drop in geopolitical tensions, synchronised monetary easing and defensive investor positioning across all asset classes”. Respond to signs that the US and China are heading for a transitional trade war agreement and there is some evidence of stabilisation in the global economic slowdown.
Government bonds also sold
According to their own statements, however, the banking strategists have also intervened in other defensive forms of investment. JP Morgan has sold positions in government bonds and Citigroup has even made a short bet on German government bonds. However, Citi has not yet fully turned around. They still see an increased risk of a US recession in the second half of 2020 and have refrained from reducing their long position in US government bonds.