Hedge funds’ bullish bets on gold jump to four-year high
Hedge funds and other large speculators boosted their net-long position in gold.
Large scale dumping of metal
In heavy post-holiday volumes on the Comex division of the New York Mercantile Exchange, gold futures for April delivery – the most active contract – plunged to $1,202.71 an ounce in mid-morning trade, down $24 or 2% from Monday’s close.
Gold gapped down shortly after the open and after breaking through its 100-day moving average, succumbed to more weakness.
After a big bounce on Friday, silver’s stellar 2015 also ran into trouble with March contracts falling as much as 6% or more than $1.00 to $16.26 an ounce.
The precious metals’ upward momentum this year have now been thoroughly broken, with the gold price giving up nearly all its 2015 gains since hitting an intra-day high of $1,307 in January.
Silver’s fall-back has been even more dramatic – the metal went off to the races at the start of the year to hit a 2015 high of $18.36 on January 22, up 15% in three short weeks. Year to date gains have now shrunk to just 4%.
Gold seems to be pricing in a positive outcome of negotiations between the EU and Greece to determine bailout conditions for the indebted nation.
It’s far from certain that a Greek exit from the single currency can be avoided and that contagion wouldn’t spread to the bloc’s other peripheral economies like Portugal and Spain. If the euro looks under serious threat it could create safe haven demand as happened after Switzerland dropped its currency bombshell in January.
Nevertheless, the impact of a Grexit on the global financial system and capital markets appears to have been discounted by the US stock market which hit fresh record levels on Tuesday.
Positioning in the futures market by large investors like hedge funds or so-called “managed money” last week signalled some of today’s weakness.
Net long positions of gold – bets that the price will go up – held by hedge funds were cut for a second week in a row according to the Commodity Futures Trading Commission’s weekly Commitment of Traders data.
In the week to February 10 bullish positioning fell by 17.3% from the previous week after surging in January to more than 2-year highs when gold was notching nearly 10% gains for the year.
After two years of large-scale liquidation by investors in exchange traded funds backed by physical gold and silver, many precious metal bulls returned to the market in numbers in January.
But among retail buyers and institutional holders of bullion the mood has also now soured. Following inflows of 78 tonnes since the start of the year, last week saw the first sizeable drop in holdings in the dozens of gold-backed ETFs listed around the globe.
After net redemptions of just over seven tonnes last week total holdings dropped back to 1,670 tonnes, a hundred tonnes below its year high.
Modest inflows returned to physical silver-backed ETFs last week but total holdings of 19,329 tonnes sits well below record levels in October of 20,182 tonnes.
Image by Generation Grundeinkommen
