Hedge Funds Now Bullish On Gold

Institutional investors, including hedge funds, have reversed their aversion to gold, as they are now betting on the precious metal to move up again, according to the Commodity Futures Trading Commission.

On August 18 they surpassed gold futures and options contracts betting against gold by 18,454, said the CFTC. A week before bears had 2,794 futures and options contracts than gold bulls.

Much of this came from the stock market crash in China, and was heightened further by Chinese exports plunging by 8 percent, pointing toward the country probably being in the early stages of a recession. It also generated questions as to how healthy China's economy has really been, and whether or not the data reported was even less accurate than had been believed.

Japan has also been struggling, along with the rest of Asia. Countries more heavily reliant on natural resources, such as Canada and Australia have also been suffering a reversal in fortunes, as commodity demand has been falling.

All of this is happening in the midst of a currency war, as many nations with significant export markets fight to weaken their currencies in order to boost exports.

Recent numbers from media also show that sector is under strain, with ESPN losing a moderate number of subscribers.

Taken together this has increased the probability the Fed will hold off on raising interest rates. That's likely to play out that way, and if things get worse, we may not even see a bump up in the interest rates.

Combined with a strong U.S. dollar, which is starting to put pressure on U.S. exports, as data from the New York Fed recently stated that region of the country failed to meet expectations, it would be very surprising to see a change in interest rates by the Fed.

Things are falling apart so quickly, it's hard to see how gold prices can be suppressed going forward. Instead of an interest rate hike, we may be seeing talks of another round of quantitative easing instead.

JPMorgan (JPM), Goldman (GS) Top Brokers to Hedge Sector

In a report revealing the health of the hedge fund sector, JPMorgan (NYSE:JPM) and Goldman Sachs (NYSE:GS) were found to still be the top prime brokers to the hedge fund industry.

For 2010, hedge funds gained $56 billion in net inflows, according to the report, a record for the industry.

According to Hedge Fund Research, hedge funds assets grew by $149 billion in the fourth quarter to $1.917 trillion. The previous record for a quarter was $140 billion.

The assets held at the end of the quarter fell just shy of the $1.93 trillion record set in the second-quarter of 2008.

For all of 2010, net inflows reached $55.5 billion, the highest total since 2007. In the fourth quarter of 2010 investors put $13.1 billion to work via hedge funds.

Goldman and JPMorgan accounts for almost 50 percent of the market.

Citigroup (NYSE:C) Starting Hedge fund Consultation Service

Citigroup (NYSE:C) said today it is launching a hedge fund consulting service to it prime financial business.

Sandy Kaul, head of U.S. operations for the business advisory practice said, “A lot of the traditional clients that we have at Citi’s prime brokerage are facing new challenges around their organization, operational and technology maturity. There’s a whole new level of depth around the scrutiny that’s being put into the evaluation of allocating to a hedge fund.”

Prime brokers usually consult with smaller companies, which seems to point to a legitimate opportunity and potential profits from an underserved market.

Citigroup is targeting hedge funds with minimum assets of $3 billion.

Part of the service will be to help hedge funds to properly register and to help them transfer costs to their clients through a fee structure.

Three Hedge Funds Raided by FBI Over Alleged Insider Trading

Diamondback Capital Management LLC and Level Global Investors LP, both based in Connecticut, and Loch Capital Management LLC, based in Boston, were raided by the Federal Bureau of Investigation on allegations of insider trading.

Richard Kolko, an FBI spokesman, said this: "The FBI is executing court-authorized search warrants in an ongoing investigation."

Loch has assets valued at $750 million as of January 1, 2010; Level Global has about $4 billion in assets; and Diamondback has approximately $5 billion in assets under management.

Some people close to the situation say this could be just the beginning, and there could be more firms named and investigated in the future.

They asserted this will probably be the largest investigation related to insider-trading, which will include investment bankers, consultants, mutual fund investors and hedge fund traders.

NovaGold Resources (NYSE:NG) Soars on Gold Prices

Although well off its 52-week high of $9.18, NovaGold Resources (NYSE:NG) was among the gold mining leaders on Friday, surging to close at $7.36, a $0.45 gain, or 6.51 percent.

NovaGold attained its high at the beginning of May.

Hedge fund managers John Paulson and George Soros have both expressed deep interest in the company, investing at least $175 million combined in the gold mining company, with Paulson's hedge fund investing $100 million.

NovaGold holds large stakes in Donlin Creek and Galore Creek, both holding huge reserves of gold, which the company now has the money to develop with its partners.

John Paulson's Gold Investments Mixed in 2010

Kinross Gold (NYSE:KGC), SPDR Gold Trust (NYSE:GLD) and Anglogold Ashanti (NYSE:AU) are all part of the massive gold holdings of hedge fund manager John Paulson, and so far in 2010 they haven't done a lot to increase the value of the fund, although Anglogold and the SPDR Gold Trust have helped some over the last six months, at least generating gains during that time.

Although that is the case so far, the gold miners are poised to take off, along with gold prices in general, as they've lagged behind the price movements of gold for some time, and signs are there showing that has began to change.

As far as the numerous gold holdings of Paulson, they should contribute strongly to his fund over the rest of the year, and it'll be surprising if he doesn't have positive returns for the third year in a row.

Rumors are so far he's down by close to 3.3 percent for the year.

NovaGold (AMEX:NG) Positioned for Strong Growth

NovaGold Resources Strong Future

Although the current resources of NovaGold (AMEX:NG) haven't been inspiring to investors, those they hold with future potential definitely are, which is why hedge fund investors John Paulson and George Soros made significant investments in the company.

Total investment from the two hedge funds totaled $175 million, and that doesn't include other investors with interests in the gold miner.

Investors with a long term outlook know the extraordinary value in Novagold, as evidenced primarily from their Donlin Creek and Galore Creek projects, which are considered among the largest of any gold projects in the pending development stage in the world.

Novagold is another undervalued gold mining company with not only the two project mentioned above as part of their future, but others as well.

The company has also made quality partnerships with companies like Barrick Gold (NYSE:ABX) and Teck Resources (TSE:TCK-B), along with the financing deals, showing they have a great plan in place and are getting the right partners and financing to go forward with confidence and success.