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Gold price: Hedge funds, ETF investors show buying fatigue

Gold ETF vaults are swelling.

On Monday gold continued to tread water with December futures trading on the Comex market in New York exchanging hands at $1,339.50 an ounce in European trade, down a couple of dollars from Friday’s close.

Gold touched a two-year high in July around $1,380 an ounce and year to date the metal is up 26% or close to $280 an ounce, one of its best annual performances since 1980. But there are signs that buying fatigue has set in for both hedge funds active on the derivatives market and institutional and retail buyers of physically-backed gold exchange traded funds.

Bullish bets are down 24% from the July high and the lowest net position since May’s correction, when gold came close to falling through the $1,200 an ounce level

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 reverse this year however with investors building large bullish positions culminating in an all-time record number of net long contracts – bets that gold will be more valuable in future – in the first week of July of 28.7 million ounces. That was more than managed money investors’ holding on the gold derivatives market in New York of August 2011 when gold was peaking at an all-time high of $1,900.

Last week according to the CFTC’s weekly Commitment of Traders data up to September 20 released on Friday speculators showed impatience with gold’s inability to break out of its $1,300–$1,350 an ounce range, adding more than 10% to short positions and cutting longs by the same proportion.

On a net basis bullish bets have now fallen to 21.9 million, down 24% from the all-time high and the lowest net position since May’s correction, when gold came close to falling through the $1,200 an ounce level.

Investors are also pulling out of top physical gold-backed exchange traded fund – SPDR Gold Shares (NYSEARCA: GLD). GLD’s holdings hit a 2016 high at the same hedge funds were stocking up on futures lots in July, but some 31.5 tonnes have been pulled out from the fund’s vaults since then, reducing the value of holdings by $1.7 billion.

GLD dwarfs other physically-backed gold ETFs holding more than 45% of the global total and after a few dismal years, GLD rise in assets under management in 2016 surpassed the banner years of 2009 and 2010 when investors caught in the global financial crisis and spooked by quantitative easing piled into GLD.