Fed Rate Hike Fears Prompt Massive Profit Taking In Gold By Hedge Funds

New York (May 15)  Falling geopolitical tensions and expectations that the Federal Reserve is on track to raise rates in one month prompted hedge funds to take profits in gold, liquidating long positions, according to the latest data from the Commodity Futures Trading Commission.

Net bullish positioning among fund managers showed that interest in the yellow metal has fallen to its lowest level in seven weeks. It was the biggest decline in gold long since mid-2008.

The disaggregated Commitments of Traders report for the week ending May 9 showed money managers massively decreased their speculative gross long positions in Comex gold futures by 43,912 contracts to 151,419. At the same time, short bets increased by 3,737 contracts to 55,457. Gold’s net length now stands at 95,962 contracts.

Gold’s net positioning dropped more than 33% from the previous week as prices fell to their lowest level in eight weeks.

“Fed speakers are taking a much more hawkish tone, which convinced investors to take profits and saw the yellow metal breaking through the 100dma to a low of $1214.39/oz on the week, also drove the long liquidations,” said Bart Melek, head of commodity strategy at TD Securities.

However, looking ahead, Melek added the selling pressure could be over as U.S. economic data started to disappoint again and geopolitical tensions once again start to rise.

“The resulting lower carry costs and uncertainties have likely persuaded investors to hold off on liquidating and prompted some additional short covering,” he said.

Phillip Streible, senior market analyst at RJOFutures, agreed that there is enough uncertainty to encourage funds to take advantage of lower gold prices.

“The market is kind of in no man’s land but investors aren’t completely giving up on gold because of all the tension throughout the world,” he said.

Commodity analysts are also expecting long liquidation and renewed bearish bets to be slow moving forward, being less of a headwind for the market.

Hedge funds also continued to increase their bearish outlook for silver.  Money managers’ net bullish positioning fell to its lowest level in 15 months, which is significant considering that only a month ago, it was at a record highs.

The disaggregated report showed money-managed speculative gross long positions in Comex silver futures fell by 10,240 contracts to 67,963. At the same time, short positions rose by 11,035 contracts to 34,862. Silver’s net length now stands at 33,101 contracts.

Silver’s net length declined 39% from the previous week. The strong selling pressure caused silver prices to decline 4.5% during the survey period, giving up most gains seen at the start of the year.

Source: Reuters