Hedge funds held record bullish gold price bets before Brexit

On Monday, gold consolidated post-Brexit gains to settle on the futures market in New York at the highest price in two years.

In afternoon trade gold futures on the Comex market for delivery in August, the most active contract, was last exchanging hands for $1,327.80 an ounce up $5.40 from Friday's close. On Friday , the metal hit an intra-day high of $1,362.60 the highest since July 2014. The metal is enjoying one of its best years in decades trading up 25% or more than $260 an ounce so far in 2016.

Gold's allure as a safe haven asset has been burnished by the shock referendum result in the UK, a collapse in bond yields, and volatility on equity and currency markets.

Ahead of the Brexit vote large scale gold futures and options speculators or "managed money" investors such as hedge funds continue to position themselves for further gains in the gold price with bullish bets hitting a record high.

Hedge funds dramatically raised bearish bets on gold during the final months of 2015 pushing the overall market into a net short position – bets that gold could be bought back at a lower price in the future – for the first time since at least 2006, when government first started to collect the data.

The trend was thoroughly reversed this year however with investors steadily building long positions – bets on higher prices – pausing only briefly in May when gold's 2016 rally appeared to run out of steam.

Hedge funds piled back in as the Brexit vote neared pushing net longs to all-time record number of contracts, surpassing the August 2011 tally when gold was peaking above $1,900.

According to the CFTC's weekly Commitment of Traders data up to June 21 released on Friday speculators cut shorts and added  to longs for a net bullish position of 25.6 million ounces or just shy of 800 tonnes.

Speculators were also well positioned in silver with a record 375.8 million ounces or 11,686 tonnes in net longs. Silver futures were trading slightly lower on Monday at $17.81 an ounce following a spike to $18.37 on Friday, the highest since January 2015. Year to date silver is outperforming gold with a 27.8% rise.

Image: Paul Lloyd