Gold price: Hedge fund bears in about turn

On Monday gold continued to tread water with December futures trading on the Comex market in New York exchanging hands at $1,332.50 an ounce in European trade.

Gold has now given up most of the gains wracked up last Tuesday in response to weak US economic data and the prospect of a delay in interest rate hikes in the world's largest economy.

Tuesday was the best one day gain since June's Brexit poll surprised markets  – when a reading of economic activity from the US Institute for Supply Management fell to its lowest level since February 2010. Higher rates boosts the value of the dollar which usually moves in the opposite direction of the gold price and gold has a close negative relation to government bond yields.

Gold touched a two-year high in July around $1,380 an ounce and year to date the metal is up 25% or $270 an ounce, one of its best annual performances since 1980.

Large scale speculators push bullish gold bets to 940 tonnes, the second highest on record and more than in August 2011 when gold peaked at an all-time high of $1,900

Large scale gold futures and options speculators or "managed money" investors such as hedge funds were wrong-footed by the negative employment and ISM numbers and had been positioning themselves for further declines in the gold price in the run-up to Federal Reserve rate hikes later this year.

Hedge funds dramatically raised bearish bets on gold during the final months of 2015 pushing the overall market into a net short position – bets that gold could be bought back at a lower price in the future – for the first time since at least 2006, when government first started to collect the data.

The trend was thoroughly reverse this year however with investors building large bullish positions culminating in an all-time record number of net long contracts – bets that gold will be more valuable in future – in the first week of July of 28.7 million ounces. That was more than managed money investors' holding on the gold derivatives market in New York of August 2011 when gold was peaking at an all-time high of $1,900.

Those positions were subsequently trimmed as hawks on the Fed signalled rate hikes could come sooner than previously thought. But last week according to the CFTC's weekly Commitment of Traders data up to September 3 released on Friday speculators made an about turn, cutting shorts by nearly a third and adding 10% to longs for a net addition in bullish bets of 4.1 million ounces to 27.9 million ounces or 868 tonnes.

Gold price: Hedge fund bears in about turn

Source: Saxo Bank