Hedge funds slash bullish wagers on gold over Trump election win
Hedge funds and other large speculators boosted net-long positions by 11% to 197,362 as of Nov. 12, the lowest in 14 weeks.
The rally in the gold price in recent weeks ran out of steam on Wednesday after the release of Federal Reserve minutes that showed a number of officials want tighter US monetary policy sooner and after hawkish comments by a key Fed member.
In late trade on the Comex division of the New York Mercantile Exchange, gold futures for April delivery deepened its losses after the release of the minutes to trade at $1,312.50 an ounce, down $11.90 from Tuesday’s close.
Minutes of the Fed’s end of January meeting released today showed widely differing views on the pace of the tightening of monetary policy with some wanting an increase in short term rates as soon as the middle of the year while others are considering pausing the rate at which the stimulus program is being tapered.
While the minutes show a growing number of policy hawks at the Fed recent bad data for the US economy – which the FOMC would not have considered when it made the decision to trim the quantitative easing program by $10 billion – have strengthened the hands of the doves on the Federal Open Market Committee.
The US economy has suffered a string of setbacks this year, particularly on the jobs front, and data out on Tuesday disappointed again. January US industrial production declined 0.3% compared to an expected jump of 0.2% while the New York Fed Empire Manufacturing Index in February dropped to 4.48 from 12.51 in January. About 70% of the US economy is consumption based and advance retail sales numbers fell again in January and at a faster of 0.4% compared to the 0.2% slowdown in December.
Dennis Lockhart, the president of the Atlanta Federal Reserve, said in a speech at Mercer University Wednesday that while he’s comfortable with the Fed’s indication of a first hike in short-term interest rates only in the second half of 2015, he expects the asset purchase program “to be completely wound down by the fourth quarter of this year.”
MarketWatch reports Lockhart said “the central policy question facing the Fed is the “timing of the liftoff.” He said only dramatic developments would cause the Fed to alter the pace of its steady reduction in asset purchases.”
In a research note Standard Bank, which may soon join the London Gold Fix, said the minutes may initially be bearish for gold:
“The minutes of the 28–29 January FOMC meeting may be more upbeat about US growth than expected because the meeting took place before recent US data had started undershooting expectations.
“However, we ultimately expect the market to look past the minutes towards more recent statements by the Fed, such as Chair Yellen’s monetary policy report to the House Financial Services Committee last week when she indicated that the reduction in asset purchases by the Fed was likely to continue at $10bn per month.”
Monetary expansion, particularly since the financial crisis, has been a massive boon for the gold price. Gold was trading around $830 an ounce when previous chairman Ben Bernanke announced Q1 in November 2008.
Gold and the US dollar usually move in the opposite direction and gold’s perceived status as a hedge against inflation is also burnished when central banks flood markets with money.
This was not the case on Wednesday with gold retreating despite the dollar falling to its lowest level this year against a basket of currencies before strengthening somewhat after the release of the minutes.
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