Near record shorts could set up huge Fed gold price surprise
The gold price suffered a mini-selloff on Tuesday, a day before a decision by the US Federal Reserve on whether to start tapering its economic stimulus program.
On the Comex division of the New York Mercantile Exchange, gold futures for February delivery last traded at $1,233.10 an ounce after falling by more than $14 during the regular trading session.
The Federal Open Market Committee on Wednesday could announce a reduction in purchases of $10 billion – $20 billion under its quantitative easing program at the conclusion of a two-day meeting that started today.
The Fed has been reviewing QE and is eager to throttle back asset purchases running at $85 billion a month that has pumped $4 trillion of easy money into the US economy since the program kicked off in December 2008, when gold was trading at $830 an ounce.
Forecasts of the Fed’s timetable and size of cutbacks vary widely with a Reuters poll showing only 12 out of 60 economists predict a taper this week and a small majority believing cuts will only come in March.
While some observers believe the impact on the gold market of the eventual QE taper announcement would be minimal as the news is already baked into the price, others see a rally if the taper is delayed further or a fall to 2013 lows below $1,200 if Ben Bernanke and co surprise the market.
A wildcard for price action in gold is the near record number of large investors holding short positions – bets that the price will decline.
While short positions held by managed money fell by more than 6% to 74,312 lots in the week to December 10 according to Commodity Futures Trading Commission data released Friday they remain within shouting distance of the more than 7-year high above 80,000 lots reached the week before.
So many big players short of gold could translate into further upside for the metal as commercial traders are forced to cover their positions ahead of year-end closeouts if the gold price should react positively to the Fed announcement.
{{ commodity.name }}
{{ post.title }}
{{ post.date }}
2 Comments
MacFly1
Something’s definitely wrong with this market. I’m outta all stocks except gold miners, and bonds. I got my gold, my silver, and most especially my gold mining stocks. Just remember to sell them at the market top! (like I did in 2008) Sell into strength by percentage (make 100%, sell 50% of your shares, 150% sell another 25%, and let the last 25% or so ride to the top. When EVERYBODY’S BUYING GOLD MINERS, that’s when you get out and head for your cabin up in the Rockies.
Please come to Denver with the snowfall
We’ll move up so far into the mountains that we can’t be found
We’ll throw our love you echoes down the canyon
and then lay awake at night until they come back around
Hey ramblin’ Fed why don’t ya settle down
Denver ain’t your kind of town
There ain’t no gold and there ain’t nobody like me
I’m the number one fan of the fiat currency from DeeeeCeeeee.
isdeer
I like the idea of being able to buy physical gold as in 2008 for $803oz, In reality however its 2013 and the miners cant produce it for that price, so if you close the miners down by lowering the price, you stop production and you close down mines .
What people forget is you cant restart these mines anytime soon. They are not like paper printing presses which can be turned on and off at a whim.
When production slows physical gold will again become a scarce and sought after commodity and those surviving gold miners still producing at low cost become very rich along with their stock owners, all the while the bank of England and the rest of those paper gold sellers are walking a financial tightrope as they try to offload their paper gold and buy physical to meet their commitments to Germany, Finland China etc…etc, who want their physical gold back because they don’t place much value in the paper their holding.