Hedge funds bet on gold gains amid price concerns

TradingPub Admin | May 7, 2013

Responsive image

Want some free trading education on how certain market participants will stay optimistic about gold even as the rest of the market is losing faith? Then consider the following:

Hedge fund bets
Hedge funds recently bolstered their bets that the precious metal will rise in value, as data provided by the U.S. Commodity Futures Trading Commission (CFTC) reveals that as of April 30, the net length of these funds and other speculators was 19 percent higher at 54,762 futures and options contracts, according to Bloomberg.

Such predictions that the price of the commodity will rise after hopes that the Federal Reserve will step up its existing program of asset purchases became stronger on May 1, amid the end of the most recent meeting of the Federal Open Market Committee, the media outlet reports.

Physical demand
Major financial services firm National Australia Bank wrote in a note that "physical demand is ... likely to remain firm until the price recovers sufficiently to limit further purchases to more normal levels," according to Business Day.

The document added that the value of the precious metal could be impacted by investor preference for equities, that it could be affected by modest increases in the price level, and that "we expect gold's final resting place at the end of 2013 to be around $1,470 an ounce, which is below levels recorded at the end of last year," the media outlet reports. 

Monetary easing
Another factor that could potentially support gold prices is continued monetary easing. "It's reasonable to say that the currency debasement and easing measures will support gold," Alan Gayle, a senior strategist at RidgeWorth Capital Management, which has around $48 billion of assets, told Bloomberg. "The bulls still have to prove a lot."

He added that there is significant uncertainty surrounding the price of the metal, as "there is lot of skepticism surrounding gold. We have to watch to see if prices have found a near-term bottom."

Bearish wagers
While you might be impressed by the bullish wagers that hedge funds are making on the price of gold, there are many analysts who have a completely different view of the metal, recently predicting that it will depreciate, Bloomberg reports.

In a recent poll of these market experts conducted by the media outlet, 20 of the 33 participants estimated that the value of the commodity will decline during the week starting on Monday, May 13, according to the news source. This figure compares to nine who think that gold will appreciate, and four who were neutral in their predictions. 

Potential price bottom
As if this range of views wasn't confusing enough, there are those market experts who are forecasting that the precious metal recently hit a bottom, according to Business Day. Saxo Bank vice-president Ole Hansen has advocated this point of view, noting that outflows from exchange-traded products such as exchange-traded funds have declined recently.

He specifically noted that during the week ending on May 3, the rate of these outflows fell to its lowest in four weeks, the media outlet reports. The market expert also cited the sharp decline in the gross short positions of hedge funds. Hansen also noted the recent price increases that gold has been experiencing, saying that "technically we are in a nice upward channel since the mid April low."

The market expert predicted that the metal could experience some price increases in the near future, saying that "the market could potentially be gearing up for an attack on $1,488, followed by $1,525, especially considering the swift way we recovered despite price-negative news on Friday," according to the news source.

If you want free trading education, it is available through TradingPub, home to some of the top investors and traders in the industry.