Hedge funds are doubling down on weaker gold price
On Monday on the Comex market in New York, gold futures with February delivery dates gave up some of Friday’s gains, hurt by a stronger dollar and fresh weakness on broader commodity markets.
In early afternoon trade gold was exchanging hands for $1,076.80 an ounce, down $7.30 or 0.7% compared to Friday’s close. Gold dipped to its lowest in nearly six years last week at just above $1,050 an ounce.
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 over the past five weeks.
On Friday, the less than inspiring jobs report coupled with a surprisingly hawkish European Central Bank that dented the dollar wrong-footed some gold bears last week who had to scramble to cover record breaking short positions.
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 despite Friday’s blip futures traders’ conviction of a lower gold price was not shaken last week.
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 again last week albeit modestly.
Hedge funds have now dumped more than 150,000 lots or the equivalent of some 425 tonnes of gold since the beginning of November.
At just under 1.8 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 2009, 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, US benchmark oil West Texas Intermediate and North Sea Brent Crude were also pushed to the most bearish positioning on record ahead of Opec’s Friday meeting.
On Monday WTI traded at $37.69 a barrel, down a whopping 5.7% on the day and the lowest in seven years. Copper was also trending weaker giving up 1.5% at $2.05 a pound as the metal struggles to lift off the psychologically important $2.00 a pound, a nearly seven year low it almost breached at the end of November.