A stronger dollar and fears that the US Federal Reserve will raise interest rates at the fastest pace in more than a decade prompted large futures speculators or “managed money” investors such as hedge funds to dramatically cuts bullish bets on precious metals.
Ole Hansen, chief of commodity strategy as Denmark’s Saxo Bank, in a research note on Monday points out according to CFTC weekly Commitment of Traders data released on Friday hedge funds dumped a net 64,257 lots of gold futures and options equal to 6.4m ounces, the biggest drop on record.
Hedge funds upped gross short positions – bets that gold can be bought back at a lower price in future – three-fold, also the biggest jump since the government began collecting the data in 2006.
Net long positioning – bets that gold will be more expensive in future – dropped by 31% to just below 14 million ounces. That compares to September’s high of 26.5 million ounces when gold was hitting its 2017 peak above $1,350 an ounce.
There was weakness across the metals sector with platinum, palladium and copper also coming in for punishment:
Silver fared even worse with the net-long returning to the five-year average after seeing a 61% reduction, not least due to increased short selling.
Gold futures trading in New York were drifting lower on Monday exchanging hands for $1,247.60 an ounce in brisk lunchtime trade. The gold price is down more than $50 per ounce over the past two weeks ahead of US, UK and EU interest rate decisions this week.
As the metal provides no yield and investors have to rely on price appreciation for returns, the price of gold has a strong inverse correlation to interest rates.