Hedge funds’ bullish bets on gold jump to four-year high
Hedge funds and other large speculators boosted their net-long position in gold.
On Tuesday, the gold price continued to drift sideways as bullion traders look for direction ahead of a crucial US Federal Reserve meeting next week.
In afternoon dealings on the Comex market in New York, gold futures with December delivery dates added $0.40 to $1,121.80 an ounce after four straight sessions of declines.
Gold is still well above a more than five-year closing low of $1,084 struck August 5, but the safe haven buying amid the panic on markets did not materialize to the extent many bulls had hoped.
The focus is now squarely back on the the US economy and the prospect of the first interest rate hike in the world’s largest economy in more than nine years.
The underlying reason for gold’s inverse relationship to interest rates is that the opportunity costs of holding gold increases because the metal is not income producing. Higher rates also boost the value of the dollar which usually move in the opposite direction of the gold price.
The spectre of higher interest rates is the main factor behind a lowering of Bank of America Merrill Lynch’s gold forecast. BofA now believes gold will average $1,122 per ounce in 2015, 6.8% below its previous forecast reports SMM.
A hawkish Fed and tame inflation will see gold fall below $1,000 an ounce in 2016 says the bank adding that “the combination of higher nominal opportunity costs and lack of inflation has hardly ever been bullish in the past 40 years.”
However, as inflation in the US picks up gold should enjoy an uptrend later in 2016, averaging $1,250 during the fourth quarter of next year.
Comments
JH
he..he ..he…
“The underlying reason for gold’s inverse relationship to interest rates
is that the opportunity costs of holding gold increases because the
metal is not income producing….”
…………you mean like holding cash, or heavens forbid…saving???
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I might also point out that safe haven buying of gold does not happen when the order of the day is to sell anything valuable and with substance when you need cash for margin calls.
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I do not recommend MINING.com for your gold market advice. I am sure they would leap to agree as this type of article is not intended to provide financial advice, though it seems to be.