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Hedge Funds Setting the Stage for a Gold Price Recovery

The U.S. Comex gold futures tumbled 3.44 percent last week and fell a further 0.33 percent on Tuesday. Monday was a holiday in the U.S. Upon Wednesday open in Asia, the gold futures rebounded 0.2 percent after four consecutive days of losses. While the gold futures dropped 3.08 percent, the Dollar Index rose 1.73 percent from the end of January to 15 February. The Dollar Index retreated 0.14 percent this week. The S&P 500 index rose 0.73 percent on Tuesday and has risen 7.34 percent year-to-date. The Euro Stoxx 50 index surged 1.80 percent this week on the back of a better-than-expected February German investor confidence index although the stock index rose only one percent year-to-date.

No Harsh Words on Currency Devaluation from the G20
The G20 government officials pledged not to use exchange rates for the purpose of competitive devaluation and did not point fingers to Japan. In fact, other countries also wanted to see their currencies weaker. The Euro area economy has gotten worse in the beginning of 2013, prompting the Euro/Dollar to weaken. The Sterling will likely be weaker as the Bank of England suggested that the current real exchange rate is too high for its economic recovery. Many of the core markets are struggling with recessions, implicating that monetary and fiscal policies will continue to be loose, which should support gold prices.

Hedge Funds Reducing Commodities Bets Especially Gold
The speculators reduced their bets on rising commodities prices by 15 percent in the week ending 12 February, the largest weekly reduction since mid-November. In particular, the net long combined gold speculators’ positions calculated by Bloomberg tumbled 11 percent for the week, reaching a 6-month low at 128,581 contracts. Better retail sales and consumer confidence in the U.S. have led to poorer gold’s sentiments due to traders’ concerns of an earlier termination of the “QE infinity” in 2013. The market will scrutinize the minutes of the January FOMC meeting to be released on 20 February for the timing and conditions for halting the QE programs. However, the cleaner positioning can prepare the stage for a gold price rebound. The gold-backed ETP holdings were 2,602.3 tons last week, about 1.1 percent below the peak reached on 20 December.

Surge in Gold Traded in China
As expected, the volume traded in the Shanghai Gold Exchange reached a record level on Monday after the traders came back from the week-long Lunar New Year holiday, taking advantage of the 3.37 percent drop in the gold price last week.

Kelly Smith
Sharps Pixley, London

20 Feb 2013 | Categories: Gold

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