Gold price: Fed caught hedge funds on wrong foot
On Monday, the gold price gave up some of its recent gains after a rally that kicked off on Thursday in response to a decision by the US Federal Reserve not to raise interest rates.
In afternoon dealings on the Comex market in New York, gold futures with December delivery dates lost $4.90 to $1,132.90 an ounce in quiet trade, not far off three-week highs reached Friday.
That's also up from just above the $1,100 level ahead of the Fed's hold which sent the dollar tumbling and bond yields falling. Bond yields and gold and the dollar and gold have strong negative correlations.
It appears that gold speculators were wrong-footed by the decision to keep interest rates near zero as the positioning by hedge funds on the New York futures market shows.
According to the CFTC's weekly Commitment of Traders data for the week to September 15 large speculators on Comex – referred to as "managed money" – slashed net bullish positions by 75% to a mere 686,000 ounces.
Speculators added significantly to short positions – bets that gold could be bought cheaper in the future – and at the same time cut longs.
Short positions are now back within shouting distance of 10 million ounces (283 tonnes) while bullish bets have been reduced to more than five year lows.
In late July and early August, hedge funds entered bearish positions not seen since at least 2006, when the Commodity Futures Trading Commission first began tracking the data.
A huge gap has opened up between the dollar, bond yields and gold – the Fed-inspired rally may have only begun.