Although it might not pass as willful financial manipulation, hedge fund actions are influencing gold prices, according to Mike Swanson, founder and chief editor of WallStreetWindow, an online community of independent investors and analysts.
The price gold is being suppressed as poor-performing hedge fund — and there are many of them — are forced to meet investor redemptions, he says
But gold will rise again when those redemptions end in a week, predicts Swanson, himself a former hedge manager.
Editor's Note: Get David Skarica's Gold Stock Adviser — Click Here Now!
Nine out of 10 hedge funds failed to beat the Standard & Poor’s 500 last year, and hedge funds posted an 8 percent average return last year, compared with the S&P 500 return of 13 percent, Swanson says, citing a Goldman Sachs report.
On top of that, the third worst fund tracked by HSBC was the Paulson Advantage Fund, which lost 19 percent last year due to losing bets that the eurozone crisis would continue and gold would rise. The fund is one of the largest holders of the SPDR Gold Trust Fund exchange-traded fund and must meet investor redemptions.
"Most funds though didn't generate huge losses, their program trading algorithms simply failed to beat the market," he writes.
Still, gold investors shouldn't worry, according to Swanson. The current trend is merely a “pause” in a long-term bull market, and gold will break through $1,800 an ounce sometime this year, probably this summer, on its way to a new run, he predicts.
"We have seen several similar periods of consolidation in this secular gold bull market that have lasted well over a year," he writes. "This one will come to an end the same way they did - with gold prices reigniting and leaving those that doubt the power of gold behind."
Gold will get a huge boost from Japanese pension funds because the Japanese government's push for higher inflation, according to Bloomberg.
New Prime Minister Shinzo Abe has said he wants to increase inflation to 2 percent. That would prompt Japanese pension funds to use gold to hedge against rising prices and a decline of the yen. Their gold holdings could double to 100 billion yen ($1.1 billion) by 2015 from less than $45 billion yen, pension fund advisor Itsuo Toshima tells Bloomberg.
Editor's Note: Get David Skarica's Gold Stock Adviser — Click Here Now!
© 2013 Moneynews. All rights reserved.