Hedge funds’ bullish bets on gold jump to four-year high
Hedge funds and other large speculators boosted their net-long position in gold.
Gold on Wednesday continued its strong 2015 run with futures contracts on the New York Mercantile Exchange adding as much as $10 an ounce to change hands for $1,244 an ounce, the highest since October 22.
Gold has now advanced nearly 5% so far this year and is up sharply from close to four-year lows of $1,143 hit early November.
Expert commentator and economist Jeffrey Nichols of American Precious Metals Advisors, argues in his latest missive titled Gold: Pregnant with Possibility on Wednesday that in 2015 gold will shake off three years of underperformance and continue its long term uptrend:
Two of the most significant bearish drivers of the gold price in the past few years have been the long-lasting bull markets in both equities and the U.S. dollar. Together, the ascent of stock prices on Wall Street and the appreciation of the dollar in world currency markets have been tough competition for gold — compelling investors around the world to increase their “long” positions in these other asset classes at gold’s expense.
But, so far this year, the relative performance of equities has been in gold’s favor . . . and the yellow metal seems to be shaking off its inverse correlation to the dollar with both assets benefiting from their “safe-haven” status.
Wednesday provided plenty of evidence for this argument.
US stocks were tanking after retail sales – the main driver of the world’s largest economy – gave equity bulls a nasty surprise. The Dow Jones suffered its fourth day of losses and is now more than 780 points below record highs reached at the end of the year while the broader S&P500 index fell below 2,000, nearly 5% off all time highs reached December 26.
While the dollar traded slightly softer after the data on Wednesday, the greenback remains close to 12-year highs agains major currencies after strengthening 14.7% over the past year.
The extent of the decoupling is evident on this graph. Plotted against the greenback on the basis of the past correlation between the two, the price of gold may now be expected to be trading below $1,000 as this graph from Capital Economics suggests:
Source: Capital Economics
