Hedge funds raise bullish gold bets to 2-year high

Profit taking returned to the gold market on Monday following three weeks in a row of gains, but not before a massive change in sentiment from large investors in gold.

In healthy volumes during lunchtime trade on the Comex division of the New York Mercantile Exchange, gold futures for February delivery – the most active contract – hit $1,279.70 an ounce, down $12.60 or nearly 1% from Friday's close.

Silver's stellar run also came to a halt on Monday with March contracts falling nearly 2% to below $18.00 an ounce.

Despite Monday's pullback there appears to be a definite shift in sentiment this year after two annual declines in the price with large investors like hedge funds – so-called "managed money" – catching up with gold's 7.5% and silver's 13% rise this year.

Long positions – bets that the price will go up – held by hedge funds jumped by 19.7% to 173,268 lots in the week to January 20 according to the Commodity Futures Trading Commission's weekly Commitment of Traders data released after the close of business on Friday.

Short positions were also trimmed, which translates on a net basis hedge funds holding 27% more bullish positions: net longs of 145,732 lots or 14.6 million ounces.

That's the largest bullish position since December 2012 when gold was changing hands for more than $1,700 an ounce and compares record-breaking shorts of 8 million ounces going into 2014.

The December 2013 short position was the highest since 2007, back when gold changed hands for $700 an ounce.

The reversal in silver trade positioning by large investors are even more startling. From a net short position of 53 million ounces in October last year, speculators have now built up a net long position of 168 million ounces.

Like the price of silver, speculation in silver futures tend to be quite volatile, though.

In July last year bullish bets in silver peaked at record longs of 46,795 or 234 million ounces in July.

Image by artemuestra