INVESTMENT: Hedge Funds are driving this ‘rally’ – don’t be taken in.

Well, the Slog was wrong to assert that the FTSE had kissed 5000 goodbye. At the close yesterday, it stood at 5133. Perhaps I should’ve written ‘ought to have kissed 5000 goodbye’. It won’t last – and there’s more to that than sour grapes or blind assertion.

Back to my mantra: watch what the smart money does, not what those with an agenda say. Perhaps even the IMF has an agenda these days – I’m no longer sure. But one thing I am certain about – because the data are available – is that Hedge Funds are expecting a major correction in share prices. And while everyone else was piling in by mid last week, the Hedgies were jumping out from Thursday onwards.

$34 billion went into money-market (‘cash’) funds last week – by far the most since January 2009. Some Hedge Funds have two in five of their available investment dollars in cash. If we could just get these people to do something useful, they could transform the lives of millions; because for all their foul practices, directional manipulations and downright fraud, the Hedgies very obviously know what they’re doing. Fine, sometimes they’re busy creating their own prophecies, but I think last week’s big pullout was based on them looking around and using commonsense: China wobbling, Europe bungling and America borrowing would be enough for most people to cash out.

It certainly wasn’t profit-taking, because that sort of number is too much all at once. No, I sense this was genuine withdrawal from a position – as from when that phrase meant something. They will now sit patiently and wait for the crash….and then go back in at the low point, after having looked around elsewhere. One of the elsewheres is bound to be gold. Over £10 billion has already gone into the shiny stuff this year. Sooner or later, the big boys will lose interest in capping the price…and it will reach its real level.

One final point – which is hunch and nothing more. China’s rather confusing than Confucious style of announcement earlier in the week offered the view that Beijing believes gold is a speculative thing, and it already has all the gold it needs. My view is that this was a not entirely subtle attempt to dampen investor enthusiasm. After all, if you do want all the gold you can get, then a good start is to keep the price within limits.

It’ll be fun waiting for China’s next set of ‘statistics’ about how much gold they’re holding.