Gold is looking vulnerable ahead of Friday’s US job numbers
On Tuesday on the Comex market in New York, gold futures with December delivery dates fell for a fifth session in a row giving up more than $20 an ounce to trade at a one month low.
Settling at $1,114.10, gold is down nearly $70 an ounce or 6% from where it trading just before the Federal Reserve’s interest rate announcement last week which opened the door for a rate rise when the bank next meets in December.
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 Friday’s employment figures in the US will give the clearest indication whether the Fed lift rates from near zero where they have been since December 2008.
Large futures speculators or “managed money” investors such as hedge funds have built up huge long positions – contracts that place bets gold will be more expensive in future – since September.
Weakness since the Fed’s hawkish tone of last week can be ascribed to hedge funds reducing these positions. Should a positive jobs number increase the likelihood of a rates rise – something gold bulls haven’t had to contend with since June 2006 – hedge funds have 15.2 million ounces or 430 tonnes worth of gold looking for buyers according to the CFTC’s weekly Commitment of Traders data.
At the same time short positions have also been cut dramatically to just 3.1 million ounces creating a huge overhang in the market.
Current positioning also constitutes a huge reversal from July and early August when hedge funds entered net short positions for the first time since at least 2006, when the Commodity Futures Trading Commission first began tracking the data.