Gold price rally fizzles

On Monday, gold's good run went into reverse with the metal falling back from four-month highs hit last week as traders take profits and gold bulls take a breather.

On the Comex market in New York, gold futures with December delivery dates traded down 1% or $11.40 at $1,171.80 in busy early afternoon dealings.

Last week gold hit its highest level since June 22, amid fresh indications that a limp US economy may push the first rate hike in nine years further into the future.

Gold is still up some 6% from where it was trading before the US Federal Reserve at its September meeting decided to hold rates steady. The dollar and gold, and bond yields and gold, have strong negative correlations and on Monday the greenback rose against the currencies of its major trading partners for an 11% gain over the past 12 months.

Hedge funds reduced bullish bets to more than five year lows ahead of the Fed decision, but since then large futures speculators – referred to as "managed money" – have played catch-up with the turnaround in sentiment towards commodities and gold in particular.

According to the CFTC's weekly Commitment of Traders data for the week to October 13 hedge funds added 66% to their long positions – bets that gold will be more expensive in the future – from the week before, the fourth straight week of net long additions.

Net longs now stand at 8.2 million ounces, the highest since April, but still less than half the total in January when gold briefly traded north of $1,300.

Speculators also made deep cuts to short positions ahead of last week's rally – bets that gold could be bought cheaper in the future – reducing overall positions 25% to 5 million ounces, down from record highs above 11 million ounces set in July.

In late July and early August, hedge funds entered net short positions for the first time since at least 2006, when the Commodity Futures Trading Commission first began tracking the data.