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 Wednesday on the Comex market in New York, gold futures with December delivery dates fell for a sixth session in a row giving to trade at a seven-week low.
Exchanging hands for $1,107.00 an ounce in late afternoon trade, gold is down more than $75 an ounce or 6% from where it trading just before the Federal Reserve’s interest rate announcement last week. Gold fell to a near five-year low of $1,085 in early August.
Fed Chair Janet Yellen testified before the House Financial Services Committee on Wednesday and echoed the language of the FOMC minutes which opened the door for a rate rise when the bank next meets in December. Yellen gave a positive reading of the employment and housing markets in the US further boosting rate hawks.
@JoshZumbrun Fed Yellen looks a bit nervous, maybe she's hoping no one asks her about the huge losses big banks are taking with commodities.
— StockQuips (@stockquips) November 4, 2015
Higher interest rates boost the value of the dollar and makes gold less attractive as an investment because the metal is not yield-producing.
The US dollar index jumped to a three month high of 98.05 against the currencies of the country’s major trading partners on Wednesday. The greenback has strengthened 11.3% over the past year and the last time the currencies topped 100 for a sustained period was in the early 2000s.
Today’s level compares to a record low of 71.6 in April of 2008 and a record high of 164.72 in February 1985 when the price of gold bottomed at $284.25 an ounce.
Friday’s employment figures in the US will give the clearest indication whether the Fed lift rates from near zero where they have been since December 2008.
And as this graph from Dutch bank ABN Amro illustrates, the reaction of the gold price could be dramatic.
Traders boost view of December Fed rate hike probability to 60 pct after Yellen says next month is 'live' meeting; cc:@CMEGroup @reuters
— Ann Saphir (@annsaphir) November 4, 2015
Gold is also looking vulnerable on the technical side. Large futures speculators or “managed money” investors such as hedge funds have built up huge long positions – contracts that place bets gold will be more expensive in future – since September while cutting shorts at the same time.
Should a positive jobs number increase the likelihood of a rates rise – something gold bulls haven’t had to contend with since June 2006 – hedge funds have 15.2 million ounces or 430 tonnes worth of gold looking for buyers according to the CFTC’s weekly Commitment of Traders data.
At the same time short positions have also been cut dramatically to just 3.1 million ounces creating a huge overhang in the market.
Current positioning also constitutes a huge reversal from July and early August when hedge funds entered net short positions for the first time since at least 2006, when the Commodity Futures Trading Commission first began tracking the data.
2 Comments
Swiss Freiherr
It is a just a matter of time the whole thing comes crashing down. The goldprice will go to the roof.
ABN AMRO, come on guys. The bank is owned by the State. ABN AMRO — Dutch central bank — Bank of international settlement.
People please look at the big picture.
rayban
Not seriously …. Oh heck …. I hope it gets to be 700.00 an ounce and bids are as scarce as laughing Turkeys on USA Thanksgiving Eve . Then it is time to jump , even spring out and nail as many ounces as I can pull down and even margin in on and stuff . Come on 700.00 . Though of course a good deal is 9xx.xx anything and buyers are going to be fighting to get there . No amount of playing it coy or cool shall work , When the dam breaks it is every Gold buyer for themselves .
Seriously , in the world environment of fear and loathing and sweaty fear and terror everywhere Gold might get cheap . Really ….. I doubt this some ……