CHARTS: Gold price 'increasingly ripe for a bounce'
Gold made the most of the first full trading day of the year, jumping to a three-week high after hedge funds and ETF investors pushed the metal deep into oversold territory.
Gold for delivery in February, the most active contract on the Comex market in New York, hit a high of $1,166 an ounce in late morning trade, before paring some of those gains to settle at the highest level since December 14. Gold is up nearly $40 an ounce since hitting post-election lows of $1,124 mid-December.
Gross shorts – bets that gold could be bought back cheaper in future – have more than doubled since the Trump victory to a one-year high
In July hedge funds or so-called managed money investors in gold futures and options built up long positions – bets on a rising price – to 28.7 million ounces, the highest on record.
Investors in physically-backed exchange traded funds also poured money into gold right from the get-go last year and when large scale speculators began to cut back on bullish bets in September, ETF investors kept on buying.
But that all changed after the election of Donald Trump. Hedge funds sped up long liquidation, and this time ETF investors followed suit, pulling nearly 250 tonnes from vaults since November 8.
In a research note Ole Hansen, chief commodity strategist at Saxo Bank, says gold is increasingly looking ripe for a bounce and points out that net longs held by hedge funds are now down 85% or 24.5 million ounces from the peak after seven straight weeks of declines. Bullish bets are also more than a third below the five-year average.
Significantly, gross shorts – bets that gold could be bought back cheaper in future – have more than doubled since the Trump victory to a one-year high. Hedge funds scrambling to cover these short positions helps to explain today's rise which is also happening in heavier than usual volume, particularly so early in the new year.