Gold price: Still 1 in 5 chance of Fed surprise
On Monday on the Comex market in New York, gold futures with February delivery dates experienced the worst trading day in more than a month, hurt by a stronger US dollar in anticipation of the first rate hike in nine years later this week.
In late afternoon trade gold was exchanging hands for $1,059.60 an ounce, down $16.10 or 1.5% compared to Friday's close. Gold dipped to its lowest in nearly six years at the beginning of the month at just above $1,050 an ounce.
The likelihood that Federal Reserve will raise rates from near zero where it's been since December 2008 has now reached more than 80% according Fed Fund futures prices. Higher interest rates boost the value of the dollar and makes gold less attractive as an investment because the metal is not yield-producing.
The imminent new phase for US monetary policy has convinced large futures speculators or "managed money" investors such as hedge funds to dramatically raise bearish bets on gold, dumping more than 150,000 lots or the equivalent of some 425 tonnes of gold since the beginning of November.
According to the CFTC's weekly Commitment of Traders data speculators reversed course last week, albeit with very little conviction. Hedge funds added modestly to long positions – bets that prices will rise – and slightly trimmed short positions.
But short positions – convictions that gold could be bought back cheaper in future – continue to hover near 11 million ounces. In a note to clients Monday, analysts at Barclays argued that if the Fed were to surprise the market on Wednesday, gold should spike as the result of "aggressive short covering".
At just over 1.4 million ounces the market is still in its third biggest net short position ever, surpassing bearish positions entered into in July and early August.
That was the first time hedge funds were net negative since at least 2009, when the Commodity Futures Trading Commission first began tracking the data.