Market cuts bullish gold bets to lowest in four years

TradingPub Admin | February 26, 2013

Responsive image

Market participants reduced their bullish bets on gold to the lowest point since 2008 during the week ending on February 19, according to market experts. 

Falling bullish bets
Analysts working for Frankfurt-based Commerzbank AG wrote that during the week, wagers that the price of the commodity will rise in value plunged by 36 percent, according to MarketWatch. These total bullish bets declined to their lowest level since November 2008, these market experts stated.

"Since the major price slide from mid-last week is not yet covered by the current statistics, net long positions are likely to have been further reduced in the meantime," the analysts wrote.

The plunge in sentiment was particularly pronounced among asset managers at hedge funds and other major speculators, who slashed their bullish bets - or net long positions held in futures and options of the metal - by 40 percent during the week, Bloomberg.

International demand
Industry organization the World Gold Council recently released a report that detailed the major sources of international demand for gold in 2012. Global market participants purchased a total of $236.4 billion during the year, which was the highest annual amount on record and 4 percent more than 2011.

The document revealed that central banks in many jurisdictions were major buyers of the precious metal, as these financial institutions purchased 534.6 trillion tons in 2012, which represented a sharp increase of 17 percent from the year before.

January data provided by the International Monetary Fund indicated that the central banks of both Turkey and Russia continued this activity in January 2013, as both of these financial institutions boosted their holdings of the metal during the month.

'Net buyers'
Marcus Grubb, managing director, investment at the World Gold Council, stated that during 2012, "central banks' move from net sellers of gold, to net buyers that we have seen in recent years, has continued apace."

He added "the official sector purchases across the world are now at their highest level for almost half a century."

Fed uncertainty
Market participants have grown increasing uncertain about the intentions and future actions of the voting members of the Federal Open Market Committee (FOMC) after minutes of their recent meeting was released near the end of the week ending February 19.

The minutes indicated that several of these government officials "expressed some concerns about potential costs and risks arising from further asset purchases," according to Bloomberg.
The central bank has been purchasing $85 billion worth of debt-based financial instruments every month since late last year.

"The expectations and rhetoric out of the Fed about an exit strategy has spooked people, making them think the Fed is going to tighten stimulus," James Dailey, who oversees $215 million at Harrisburg, Pennsylvania-based TEAM Financial Asset Management LLC in, told the news source in a telephone interview. "There's a confluence of weak gold owners, and people who don't have a strong conviction about owning gold."

Further headwinds
MarketWatch reports that investors are illustrating their aversion to gold in other ways, Suki Cooper, commodities strategist at Barclays Capital, observed that investors made net redemptions from SPDR Gold Trust totaling 21 metric tons during a single trading session in February, the media outlet reports.

Cooper noted that rising purchases from emerging market economies China and India did not manage to offset tepid demand from global investors, telling the news source that "prices have struggled to find a cushion from the physical market as it fails to offset the weakness on the investment side."

Bloomberg reports that the redemptions made by investors from SPDR Global Trust were observed across a larger number of financial instruments based on gold, as investors pulled 1.6 percent of total assets from exchange-traded products related to the metal during the week ending February 19. 

If you want free, quality futures trading education, TradingPub gives you the opportunity to interact with some of the top traders and investors in the industry.