Hedge funds cut bullish commodity bets to 6-year low
Large scale speculators in gold futures added massively to short positions – bets that prices will fall – ahead of Friday's jobs report in the US which sent gold prices tumbling.
On Monday the gold price regained some of its footing, but is still trading at the lowest since November after retreating more than $140 an ounce from its 2015 high above $1,300 hit in January.
On the Comex division of the New York Mercantile Exchange, gold futures for April delivery – the most active contract – was last trading at $1,166.40 an ounce, up $2.10 or 0.2% from Friday's close.
Silver futures trended weaker on Monday with May contracts recovering from a day low of $15.71 an ounce to exchange hands at $15.79 an ounce in early afternoon trade. Like gold, silver went off to the races at the start of the year to hit a 2015 high of $18.36 on January 22, but has since given up most of those gains.
The precious metals' break in upward momentum is evident in the futures positioning of large investors like hedge funds or so-called "managed money".
Net long positions of gold – bets that the price will go up – held by hedge funds surged in January to 167,693 lots or 16.7 million ounces to hit the highest level since 2012 when gold was trading north of $1,700 an ounce.
But in the week to March 3 according to the Commodity Futures Trading Commission's weekly Commitment of Traders data bullish positioning was trimmed for the fifth week in a row.
Hedge funds increased short positions on gold – bets that prices will fall – by 18% and cut long positions at the same time, reducing the net long position by 15% to 8.8 million ounces.
Silver positioning also turned bearish last week with speculators adding 32% to short positions and scaling back longs for a net bullish position of 103 million ounces, down nearly 30% from last week.
Like the price of silver, speculation in silver futures tend to be volatile. Hedge funds had to cover a net short position of 53 million ounces in October last year after pushing longs to a record of 234 million ounces only three months earlier.
It's not only precious metals that have fallen out of favour with hedge funds.
Large scale futures investors cut bullish exposure to 24 commodities by 29% during the week. Across all sectors – from soybeans and diesel to lean hogs and palladium – net-long were run down to just 451,000 lots of futures and options.
Sentiment on commodity markets has not been this bearish since March 2009 during the global financial crisis according to data from Bloomberg and Saxo Bank.