Gold price: Hedge funds can’t exit market fast enough
On Monday on the Comex market in New York, gold futures with December delivery dates fell more than 1% to trade at a fresh five year low.
Settling at $1,065.00 gold is down $110 an ounce or just under 10% from where it was trading just before the Federal Reserve’s interest rate announcement last month which opened the door for a rate rise – which would be the first in nine years – when the bank next meets in December.
The likelihood that Fed will raise rates from near zero where they have been since December 2008, before the end of the year prompted large futures speculators or “managed money” investors such as hedge funds to dramatically raise bearish bets on the metal.
Higher interest rates boost the value of the dollar and makes gold less attractive as an investment because the metal is not yield-producing and futures traders have been hammering this home by dumping an unprecedented 130,000 lots or the equivalent of some 368 tonnes of gold in just three weeks.
Hedge funds added more than 40% to their short positions, raising bets that gold will be cheaper in future to over 10 million ounces. According to the CFTC’s weekly Commitment of Traders data speculators also cut long positions pushing the market into a the second biggest net short position ever.
Hedge funds were net short in July and early August for the first time since at least 2006, when the Commodity Futures Trading Commission first began tracking the data.
Source: Saxo Bank
Image of open outcry commodities trading at the Chicago Board of Trade in 1988 by Greg Wass
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2 Comments
George Allan Bloom
did you notice the small traders short position was larger than the long position also. i havent seen that in some time. seems like a setup for a contrarian rally at any time.
Art Easian
I have never called these ‘hedge’ funds for the simple reason that they have nothing to balance the loss with a gain on the other side. They are opportunists who were betting on the complete melt down of the economy. The sooner commodities get to a supply demand equilibrium, the better. The so-called hedge funds are bad dogs and now they are getting the whupping they deserve.
When the World Bank called the bluff of the players in Asia in the nineties, Goldman Sachs rapidly retreated to Manhattan from Hong Kong on a big 747. Within a month the rest of the copy-cats had gone back to Manhattan too and Asia collapsed except for Singapore.
Will we ever learn? There are too many players shuffling paper in these markets and it is time for a correction. None of them know gold; no one is too big to flop. Give ‘er.