Gold at $3,000? Hedge funds bet big on ‘Cold War 2.0′

Gold, a perennial favorite of investors seeking to hedge or protect their wealth from inflation, has been on a bull run that is currently bordering on being historic.

To be more precise, the precious metal reached a new all-time high of $2,670 per ounce on Thursday. Although the asset has, interestingly enough, underperformed silver’s price surge over the past two years, gold is still up approximately 60% over that same period.

Gold’s positive price action over the past two years is chiefly driven by macroeconomic factors. Inflationary pressures, high interest rates, and record demand from central banks have gone a long way to bolster the appeal of what has historically been a favored defensive holding. 

The looming U.S. debt crisis, which has no end in sight, has served to elevate both precious metals like gold and non-traditional assets such as cryptocurrencies in the eyes of retail and institutional investors alike. In addition, geopolitical tensions between the U.S. and China serve as an additional headwind for gold’s role as a safe haven asset. 

Hedge funds going long on gold

While private or retail investors, who purchased 261 tons of the precious metal in Q2 2024, do play some role in determining gold’s price action, institutional investments have always been a much more important factor.

Hedge funds seem particularly bullish on gold — per Mike McGlone, a senior commodity strategist at Bloomberg Intelligence, institutions of this type are approximately 40% net long — in simpler terms, long positions outweigh short positions by 40%.

While this is less than the peak net long value seen in 2011, it’s still a decisively bullish sentiment — and McGlone also notes that gold ETFs, which have seen significant outflows since 2020, are experiencing slowly increasing inflows — yet another signal of institutional support for the precious metal.

The analyst opined that the asset will most likely see a short-term reversal, stating: “Gold is a bull market — it’s overdue for some bucking, which means it might drop to $2,400 an ounce, but I think it’s just a matter of time (before) it gets to $3,000.”

However, dissenting voices — whether institutional or not, should always be taken into account. While the current macroeconomic conditions — dire as they are, are benefitting gold, some believe that the asset’s continued rise is an early warning signal for a black swan event. 

While these events are, by definition, impossible to predict, an event such as a debt crisis, major economic downturn, or even a collapse in other asset classes could halt the precious metal’s bull run.