Hedge funds’ bullish bets on gold jump to four-year high
Hedge funds and other large speculators boosted their net-long position in gold.
The gold market took another beating on Wednesday with futures falling to four-and-half year lows on the back of a rampant US dollar.
In early afternoon trade on the Comex division of the New York Mercantile Exchange gold for December delivery was changing hands for $1,146.10 an ounce, down $21.60 from Tuesday’s close.
Before the open of regular trade in New York the metal fell to a day low of $1,137.10, levels last seen April 2010. The selling was particularly heavy with the most active contract trading the equivalent of 22.1 million ounces, almost double the three-month average.
After ending 2013 at $1,205 an ounce, the gold price leaped out of the gates to reach $1,380 an ounce mid-March on the back of safe haven buying during turmoil in Eastern Europe and the Middle East.
But the metal failed to consolidate gains during the summer doldrums, falling below $1,200 for the first time this year early October.
The metal made a sharp recovery from there to hit a high of $1,255 an ounce by October 21, only to plummet 7% since last week Thursday after the US Federal Reserve signaled the end of its economic stimulus program.
The winding down of the Fed’s asset purchase program known as QE led to a record-setting surge in equities, boosted the dollar to four year highs and saw a sharp increase in bond yields.
SEE ALSO: Timeline of the gold price and the Fed’s rocky relationship
Gold and the dollar usually move in opposite directions as it tarnishes gold’s allure as a storer of wealth, while higher interest rates raises the opportunity costs of holding gold which produces no income.
Falling crude oil prices to four-year lows, subdued inflation indicators, the Bank of Japan’s surprise move which saw the yen drop to 7-year lows and a Republican electoral win in the US, seen as dollar-positive, have only added to pressure on the gold price.
INTL FCStone analyst Edward Meir summed up sentiment on the gold market this way:
“There is very little on the horizon that is bullish. Despite the trillions of dollars of stimulus over the past several years, most central bankers are worried about deflation, not inflation. In addition, the roaring U.S. equity markets continue to siphon off assets away from alternative investments, including gold.”
Now down more than 5% year to date, gold is set for the first back-to-back annual drop since 1998, following a 28% drop in 2013, the worst performance in over three decades.
Precious metals could see further downside ahead of the release of the US jobs report on Friday.
Good numbers could convince Fed hawks to raise interest rates sooner rather than later, providing another reason to buy dollars and sell gold.
Comments
Chance Pemberton
I don’t know when but the US dollar will collapse under the weight of debt, sharply lower personal income and the biggest hit of all will come in the form of a gradual replacement of the dollar as the world currency reserve. For now, the storm will continue to move slowly while growing larger. In time, the greatest economic storm of all time will come ashore leaving much devastation in it’s wake. One more thing, as the US goes, so goes the world. As in the past so may be the future as people and nations return to gold and silver hard currency. We’ll see.