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 gold for delivery in June – the most active futures contract – retreated nearly $10 from Wednesday closing price, but managed to stay above the psychologically important $1,200 an ounce level.
Gold fell back from a six-week intra-day high on Monday after the release of minutes from the US Federal Reserve’s interest rate setting committee meeting showed some commitment to a hike in June.
The gold price and interest rates have a strong negative correlation. As the metal produces no income, the opportunity costs of holding gold rises in a high-yield environment.
By a unanimous vote the Fed on March 18 decided to remove forward guidance that they would “patient” on increasing rates and would decide on a meeting-by-meeting basis.
According to the minutes “a further improvement in the labour market, a stabilization of energy prices, and a leveling out of the foreign exchange value of the dollar were all seen as helpful in establishing confidence that inflation would turn up,” making a June rate hike more likely:
“Several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting. However, others anticipated that the effects of energy price declines and the dollar’s appreciation would continue to weigh on inflation in the near term, suggesting that conditions likely would not be appropriate to begin raising rates until later in the year, and a couple of participants suggested that the economic outlook likely would not call for liftoff until 2016.”
