Hedge funds’ bullish bets on gold jump to four-year high
Hedge funds and other large speculators boosted their net-long position in gold.
A better-than-expected US payroll report released on Friday dropped the gold price to levels last seen mid-March.
Gold for delivery in August – the most active futures contract – fell to a low of $1,161.30 shortly after the release of the data before recovering to $1,167.90 an ounce, down $7.30 or 0.6% from Thursday’s closing price.
Expectations of a rate hike in the US has been a major factor behind gold’s weakness and Friday’s strong report not only showed 280,000 jobs created, but also a solid increase in average hourly wages and a greater labour participation rate.
The data strengthens the hawks on the Fed’s decision making committee who want to raise rates during the fall at the latest. It would be the first US rate hike in seven years.
The underlying reason for gold’s inverse relationship with interest rates is that as US yields rise the opportunity costs of holding gold increases because the metal is not income producing.
A good #employment report: Solid job gains (280,000), net upward revisions and better wage gains. Will boost #dollar and push #yields higher
— Mohamed A. El-Erian (@elerianm) June 5, 2015
Higher interest rates also boost the dollar which usually move in the opposite direction of the gold price. The price of gold has shown some resilience against the rampant greenback however.
The USD is up 18.6% against the world’s major currency over the past year, while the gold price has declined only 7% over the same period.
