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Hedge funds are short gold for the first time in years, according to figures from the US Commodities Futures Trading Commission (CFTC). Since 2006, the regulator has been keeping track of the positions that speculators, traders and producers have on the futures market for commodities.
The CFTC recorded a net short position in gold among hedge funds for the first time during the week of July 21. Combining all positions, the regulator arrived at a net short position of 11,345 contracts, with each contract representing the delivery of 100 troy ounces of gold.
The net position of hedge funds is usually a good indicator of sentiment in the gold market. In the summer of 2011, when the price of gold rose to record highs, hedge funds were also very positive on gold with a net long position in gold of 250,000 contracts. After that, the funds gradually reduced their positions in gold.
"Without a doubt, we have seen a shift in sentiment towards gold," That's what asset manager Dan Denbow of the USAA Precious Metals & Minerals Fund told Bloomberg. The price of gold is falling because of the increasing speculation about a rise in interest rates in the United States. The dollar is also getting stronger, reducing the demand for gold as a safe haven.
Even banks have become mostly negative on gold. Georgette Boele of ABN Amro sees the price falling to $1,000 this year and to $800 per troy ounce next year. Goldman Sachs' Jeffrey Currie expects the worst to come and that the Gold price can drop below $1,000 per troy ounce. Robin Bhar of Société Générale also thinks that the price of gold could fall towards $1,000 per troy ounce this year.
Hedge funds are net short on gold (Chart from Bloomberg)
The fact that hedge funds and banks have become so negative on gold may indicate that a bottom in the market is near. Historically, the top in the market is always at the point where the mass becomes positive and the bottom is at the point where the mass becomes negative.
The media, the banks and the fund managers have already become quite negative in their coverage of gold. As a result, it is becoming increasingly interesting to get in cautiously right now. Fundamentally, gold is still relatively low valued, both in relation to money growth and in relation to commodity price developments.
Of course, the gold price can fall even further, but remember that the bottom is always reached when sentiment is extremely pessimistic. In hindsight, these kinds of moments often turn out to be a good starting point.
