Hedge funds and other big speculators in commodities have started selling gold in a big way, according to trade data, just a month after they had supported the precious metal amid a record tumble in its price.
Money managers, including hedge funds, pulled $1.4bn from the US gold futures market for the week ended May 14 by trimming their net long positions in the metal, according to Reuters calculations of data released by the Commodity Futures Trading Commission (CFTC).
Just a month ago, CFTC data showed hedge funds had added to their net long positions in US gold futures despite a record loss in bullion prices at that time due to a broad commodities sell-off triggered by global economic worries.
The spot price of gold fell to below $1,340 an ounce in mid-April, losing over 8% or more than $125 in a single day. The sell-off was mitigated by buying support later in the week from consumers attracted to the drop in prices for gold bar, coins, nuggets and jewellery. Gold futures then shot back up, to above $1,400.
Since then, they’ve fallen again, closing last week at below $1,365 an ounce.
Open interest, a measure of market liquidity, fell more than 3% in the week to May 14 for gold contracts traded by money managers on the Comex division of the New York Mercantile Exchange, the CFTC data showed.
In terms of actual contracts, the net long position held by money managers fell 10,043 to 39,216. Based on Comex closing prices for May 14, Reuters calculations showed a net outflow of about $1.4bn from the drop.
In mid-April, after hedge funds had rushed in to buy gold, open interest for the precious metal on Comex jumped by a staggering 24%.
Ultra low interest rates and hundreds of billions of dollars of the US Federal Reserve stimulus money have fuelled higher prices for gold and other commodities over the past 3 years.
This year, gold’s safe-haven lure been dulled by improving US economic data, which included a May reading for consumer sentiment that stood at a near six-year high. Money has also been rotating out of gold into equity markets as US stock prices hit record highs.
Some traders expect the current sell-off in gold to not let up until the market loses between $200 and $300 more. That would push prices to levels last seen in the first quarter of 2010.
“With a few more hard losing sessions, we could be down to between $1,050 and $1,100. It could happen over two weeks or it could happen in a couple of days if the market plunges $100 a dip,” says Frank McGhee, head precious metals trader at Integrated Brokerage Services in Chicago.