Gold price: Hedge funds increase bearish bets again
The gold price regained the psychologically important $1,200 an ounce level on Friday, recovering from a more than 3-year low following a decision by the US Federal Reserve to make cuts to its economic stimulus program.
The cutbacks announced by the Fed which boosted the dollar caused the gold price to drop 3.5% or more than $40 an ounce to a more than 3-year low and the weakest closing level for the metal since August 2010.
Data from US Commodity Futures Trading Commission show in the run-up to the Fed decision hedge funds cut their bets that the price of the metal would fall to close to record levels.
Short positions – bets that price would decline – held by managed money increased to 75,199 lots in the week to December 17 according to CFTC data released after the market close on Friday, within shouting distance of the more than 7-year high above 80,000 lots reached the week before.
The increase in shorts also led to a decline in the net-long positions held by commercial traders in the precious metal by 2.8 percent to 32,524 futures and options
So many big players short of gold could translate into further upside for the metal as large investors are forced to cover their positions ahead of year-end closeouts and book-balancing.
While institutional money keeps flowing out of precious metals, retail interest in the metal may be picking up.
Liquidation of gold-backed ETFs – which collectively represents something akin to "the people's central bank" – has been cited as a major factor in the fall of the gold price this year.
The world's physical gold trusts have experienced net redemptions of more than 800 tonnes collectively, with the value of precious metals assets investments falling by a record $78 billion in 2013.
On Friday some confidence creeped back into the market with holdings of SPDR Gold Shares (NYSEARCA: GLD) – the world’s largest gold ETF by a wide margin – increasing for the first time in more than six weeks.
In a classic case of bargain hunting, investors bought a net 5.4 tonnes of gold on Friday, the first increase in tonnage held in trust by GLD since the 2.1 tonnes inflow recorded on November 5, the only day that month that buyers topped sellers.
December's net redemptions still tally almost 30 tonnes and year-to-date outflows are more than 530 tonnes, but investors picking up nearly 200,000 ounces after gold's dive the day before may signal a bottom in the market.
The price of gold is down some 28% in 2013 and is set to break its 12-year bull run that took it from around $270 an ounce at the end of 2000 to a record high above $1,900 in September 2011.
Gold's $480 an ounce fall in 2013 is the worst performance since 1980, when the yellow metal hit $850 an ounce in January only to lose $200 in a matter of days.
Image by Nagel Photography