Money managers trimmed bullish gold wagers for a third week, mirroring the retreat in prices that helped erase $1.6 billion from the value of bullion funds.
The net-long position in futures and options is at its lowest in 11 weeks after speculators added the most short bets in three months, U.S. government data show. Investors sold 13.1 metric tons of gold (COMEX:GCV14) held through exchange-traded products last week, the most since April, as prices fell 1.6%.
Open interest in New York futures and options is near its lowest in five years as gains in the U.S. economy, dollar (NYBOT:DXZ14) and equities curb investor demand. Prices dropped last week after Ukraine’s government agreed on a cease-fire with pro-Russian separatists and the dollar appreciated to its highest in more than a year against the euro (CME:E6Z14) as the European Central Bank cut interest rates.
“The concern and fear we had in the marketplace a few weeks ago has subsided,” Brian Hicks, a fund manager who helps oversee $350 million at U.S. Global Investors in San Antonio, said Sept. 5. “Europe’s going to need to continue to provide stimulus, whereas here in the U.S., our central bank is going to be pulling back the reins. Those two trends will continue to push the dollar higher and be a headwind for gold.”
Futures fell 8.7% in the past 12 months to $1,265.50 an ounce. The Bloomberg Commodity Index of 22 raw materials dropped 4%, while the MSCI All-Country World Index of equities climbed 15%. The Bloomberg Dollar Spot Index reached a 13-month high on Sept. 5.
The net-long position in gold declined 20% to 74,031 futures and options in the week ended Sept. 2, the lowest since June 17, U.S. Commodity Futures Trading Commission data show. Short holdings betting on a drop increased 44%.
Holdings in the SPDR Gold Trust, the biggest ETP backed by bullion, fell 1.2% to 785.72 tons last week, the biggest drop since May 2. Worldwide ETP holdings dropped 2.8% this year to 1,713.26 tons as of Sept. 4.
Gold is heading for its first quarterly loss this year amid signs that the U.S. economy is gaining traction, increasing opportunities for the Federal Reserve to raise its benchmark interest rate for the first time since 2006. The Institute for Supply Management’s non-manufacturing index climbed to the highest in nine years, the group said Sept. 4. The survey covers a broad range of service industries that account for about 90% of the economy.
Barclays Plc forecasts gold will fall to average $1,150 in 2015, from $1,260 this year. The metal “continues to look vulnerable” in the wake of the dollar’s strength and stronger U.S. economic data, coupled with a lack of investor conviction, analysts Suki Cooper and Christopher Louney wrote in a Sept. 5 report.
Investors should keep “a sliver of gold” in their portfolios as a hedge against geopolitical risk, Michael Mullaney, chief investment officer of Fiduciary Trust Co. in Boston, which oversees $11.5 billion, said Sept. 5.
The conflict between Ukraine and Russia has killed more than 2,600 people and displaced more than another 1 million. Markets have also contended with fighting in Iraq, Syria, Israel and Gaza in the past several months.
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