Gold price breaks higher as hedge fund bulls outnumber bears most since 2012
Heavy buying saw the price of gold jump on Tuesday hitting levels last seen a year ago as safe haven buyers seek refuge amid escalating tensions on the Korean peninsula and weakness on equity markets see investors rotate back into gold.
Gold for delivery in December, the most active contract on the Comex market in New York gained nearly $20 an ounce hitting a high of $1,349.70 in afternoon trade before settling at $1,344.50. Year to date gold is up 17%.
The all time high for trading volumes on the exchange was set on the day after Donald Trump was elected president when nearly 90m ounces swopped owners
Volumes were some of the highest recorded for the Comex with futures contracts equivalent to more than 56m ounces or some 1,750 tonnes exchanging hands. That's more than 85% above average daily volumes during August which was already a record trading month. The all time high for trading volumes on the exchange was set on the day after Donald Trump was elected president when nearly 90m ounces swopped owners.
The North Korean hydrogen bomb test over the weekend that resulted in a break between the great powers involved in the standoff sparked the latest rally in the metal.
President Trump's warnings that the US will stop trading with any country that does business with the rogue nation drew scorn from Beijing. Yesterday US Ambassador to the United Nations Nikki Haley said Kim Jong Un was "begging for war" which prompted Moscow on Tuesday to warn of a "global catastrophe" if "military hysteria" is not replaced with diplomacy.
Managed money investors such as hedge funds which abandoned the gold market for equities and other yield-producing investments in what became known as the Trump trade even before the latest geopolitical escalation, have been returning to the precious metal market in droves.
Hedge funds added to their exposure to the yellow metal for the sixth straight week according to trader positioning data supplied by the government. Net longs – bets that gold will be more expensive in the future – rose 18% to the equivalent of 23.2m ounces, the highest since September.
A trading note from Saxo Bank points out that the ratio between longs and short (bets that gold can be bought back more cheaply in future) positions has jumped from 1 to almost 19 in the past few weeks. That's the highest ratio since December 2012.