Hedge Funds Keep Cutting Gold Positions

Hedge funds extended this year’s longest exit from bullish gold bets as slumping prices and investor outflows since June erased $7.16 billion from the value of exchange-traded funds backed by the metal.

The net-long position in New York futures and options fell for a fifth straight week, with speculators boosting short bets to the highest since June, U.S. government data show. Investors sold 17.88 metric tons of gold held in ETPs last week, sending holdings to the lowest in five years.

Prices tumbled to an eight-month low today after the Federal Reserve last week raised its outlook for interest rates, crimping demand for an inflation hedge. The appeal of gold also is waning as the U.S economic recovery sends the Standard & Poor’s 500 Index of shares to a record and the dollar to the highest since 2010. Gold’s 60-day volatility is near a four-year low, and open interest was almost the lowest since 2009.

“There are no compelling reasons to be in gold,” said Brian Levitt, a New York-based economist at OppenheimerFunds Inc., which manages $251.4 billion. “There are no inflationary pressures. You have a central bank that’s going to tighten sooner than most of its trading partners. That to me portends a strong dollar and weaker gold prices.”

Futures fell 1.2 percent last week to $1,216.60 an ounce on the Comex, the third straight decline. The Bloomberg Commodity Index of 22 raw materials slipped 1.5 percent last week, and retreated to a five-year low today, while the MSCI All-Country World Index of equities climbed 0.5 percent. The Bloomberg Dollar Spot Index rose 0.5 percent. Gold fell 0.2 percent today to $1,213.40 an ounce in New York.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza