Gold Retreats From Two-Month High as Rally Seen Overdone
New York (June 20) Gold fell from a two-month high in New York on speculation that gains were exaggerated as investors sought to close out bearish positions after the Federal Reserve said it expects interest rates to stay low.
Short positions held by money managers betting on falling prices jumped fivefold since reaching a 15-month low in March, U.S. Commodity Futures Trading Commission data show. Gold rose 3.3 percent in the two days through yesterday after Fed Chair Janet Yellen said the central bank plans to keep its interest-rate target low for a considerable time, raising concern that lower borrowing costs may revive the threat of inflation and the appeal of gold as a hedge.
“It’s clear that investors are quite nervous, and this largely springs from the large volume of gross shorts in the market,” UBS analysts including Edel Tully wrote in an e-mailed note. “We’re not convinced that gold’s recent rally has further longevity. A re-basing of expectations post-Fed conference, which had near-term tones of hawkishness and further-out tones of dovishness, did not warrant gold’s $50 surge.”
Gold for August delivery declined 0.3 percent to $1,310.30 an ounce at 7:28 a.m. on the Comex in New York, after touching $1,322.50, the highest since April 15. Futures trading volume was 42 percent higher than the average for the past 100 days for this time of day, according to data compiled by Bloomberg. The precious metal has increased 9 percent in 2014, after ending a 12-year bull run last year on expectations the central bank would scale back monetary stimulus.
Gold for immediate delivery fell 0.8 percent to $1,309.98 an ounce in London, according to Bloomberg generic pricing. Prices also gained in recent weeks as escalating tension in Iraq and Ukraine raised demand for the precious metal as a haven.
Hedge Funds
Hedge funds and other large speculators held 69,963 short contracts in gold as of June 10, compared with 13,510 contracts on March 18, according to the CFTC. Speculators were still net-long by 51,280 contracts, near the lowest since January.
“Clearly after a move like this you will see some consolidation, so it’s natural to see gold pull back,” Jeremy Baker, a senior commodity strategist who helps oversee about $600 million at Harcourt Investment Consulting AG in Zurich, said by telephone today. “What we really need to watch is what kind of squeezing is going on in the market and how many shorts have covered.”
Silver for July delivery was little changed at $20.66 an ounce in New York after reaching $20.925 yesterday, the highest since March 19. Platinum for the same delivery month slid 1.2 percent to $1,456.90 an ounce, while palladium for September delivery fell 1.5 percent to $826 an ounce.
Source: Bloomberg
