Hedge funds slash bullish wagers on gold over Trump election win
Hedge funds and other large speculators boosted net-long positions by 11% to 197,362 as of Nov. 12, the lowest in 14 weeks.
The steady climb in the gold price in recent weeks came to a halt on Tuesday, as momentum traders take some profits in the metal up nearly 10% since the start of the year.
In noon trade on the Comex division of the New York Mercantile Exchange, gold futures for April delivery – the most active contract – hit $1,324.60 an ounce, down $4.30 from Monday’s close, but up from lows earlier in the day of $1,314.
Gold remains near a three-and-half month high as 2014 sees a shift in sentiment after 2013’s 28% retreat, the worst performance since 1980.
Gold’s rally in 2014 on the back of safe haven buying on turmoil in emerging markets, weak economic news from the US and continued strong physical demand from Asia has not convinced everyone that the market has turned a corner.
The median forecast for the fourth quarter 2014 of the nine gold analysts tracked business news wire Bloomberg is $1,165 an ounce and the two most accurate gold price forecasters in the group are even more bearish:
“I just see this [gold’s rally and ETF buying in 2014] as a corrective move,” said Robin Bhar, the head of metals research at Societe Generale SA in London and the most-accurate forecaster tracked by Bloomberg in the past two years. “We would still want to be bearish gold,” said Bhar, who expects a fourth-quarter average of $1,050.”
“Haven demand plays well when gold is cheap, but it’s no longer cheap,” said Justin Smirk, a senior economist in Sydney at Westpac Banking Corp. and the second most-accurate forecaster tracked by Bloomberg in the past two years. “I’m a little surprised by the volatility in the market, but it really doesn’t change my overall view,” said Smirk, who expects a slide through the year to a fourth-quarter average of $1,020.
A week ago, Credit Suisse’s head of precious metals research, Tom Kendall, speaking on CNBC predicted that the rally in gold may start to fizzle out:
“I wouldn’t be surprised if we see it trade up a little bit above $1,300 in the next couple of sessions,” but “I think the momentum that we’re seeing here is probably looking to exhaust itself in the not-too-distant future.”
Kendal is particularly negative towards gold this year saying that towards the end of 2014 the gold price will touch $1,000 an ounce:
“[It’s] not out of the realm of possibility by any stretch of the imagination, particularly once we get through this soft patch in the U.S. economy and we see real interest rates tick back up.”
ETFs vs bars and coins
A new study by the World Gold Council shows demand for bars and coins surged to an all-time high of 1,654 tonnes as individual investors took advantage of lower prices.
Investment in physical gold trusts or gold-backed ETFs moved in the opposite direction in 2013 with net redemptions totaling just over 880 tonnes.
The net effects was an overall 15% decline in gold demand in 2013 according to the industry group.
After turning gold into a one-way bet lower last year, large investors, primarily made up by hedge funds, have recently turned more bullish.
Net long positions – bets that the price will go up – held by so-called managed money surged 17% and to 69,291 lots or 6.9 million ounces according to Commodity Futures Trading Commission data released on Friday.
Last week gold ETF holdings also showed some positive signs, increasing by 3.2 tonnes.
While the additions are still modest February is on track to show the first monthly increase in ETF holdings since December 2012, when gold in vaults held by these funds peaked at over 2,600 tonnes.
Image of gold bear by The Scott
