Hedge funds have never bet this much on a falling gold price
On Tuesday on the Comex market in New York, gold futures with February delivery dates eked out a small gain in brisk post-holiday trade, but remains not far off near five-and-half year lows hit last week.
Exchanging hands for $1,067.40 gold is down more than $100 an ounce or just under 10% from where it was trading just before the Federal Reserve's interest rate announcement in October which opened the door for a rate rise – which would be the first in nine years – when the bank next meets in two weeks time.
Last week gold touched $1,053 an ounce, the lowest since February 2010 and November has been the worst month for gold since mid-2013, a year during which the metal fell 28% in value.
The likelihood that Fed will raise rates from near zero where they have been since December 2008, before the end of the year prompted large futures speculators or "managed money" investors such as hedge funds to dramatically raise bearish bets on the metal.
Higher interest rates boost the value of the dollar and makes gold less attractive as an investment because the metal is not yield-producing and futures traders have been hammering this home by dumping nearly 140,000 lots or the equivalent of just under 400 tonnes of gold over just four weeks weeks.
According to the CFTC's weekly Commitment of Traders data speculators cut back long positions – bets that prices will rise – and added to their short positions. That raised bets that gold will be cheaper in future to nearly 11 million ounces.
At 1.4 million ounces the market is now in its 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 2006, when the Commodity Futures Trading Commission first began tracking the data.
It's not just gold that is being swamped by negative sentiment. According to the CFTC, 15 of the 24 commodities tracked turned more bearish last week.
Those include the major commodities like crude oil, copper, soybeans, cotton, corn and wheat where speculators are betting that these commodities will be cheaper in future. Like gold US benchmark oil West Texas Intermediate and North Sea Brent Crude were pushed to the most bearish positioning on record.
Image – precious metals smelter workers at Glencore's Kazzinc operations: Source: VisMedia