Gold slump not over as speculators go net-short

[NEW YORK] The slump in gold that took prices to a five-year low may have further to run after hedge funds swung into a net-short position for the first time.

The shift in New York futures and options came as speculators increased their bearish wagers to the highest since the US government data begins in 2006. Long holdings declined for a fourth week.

Gold fell to the lowest since 2010 last week, and futures in New York are poised for the biggest monthly loss in two years. Prices are plunging amid mounting speculation that US interest rates will climb this year, curbing the appeal of bullion because it doesn't pay interest like competing assets. At the same time, China bought less of the metal than analysts were expecting, and the dollar is strengthening.

"You're starting to see some real fear in the gold market for the first time," said Eric Crittenden, the chief investment officer at Phoenix-based Longboard Asset Management LLC, who manages US$304 million. The fund has been short since 2013 and increased those positions in March. "I'm not going to be the least bit surprised if this turns into something very significant and we get a lot lower prices." Futures fell 4.1 per cent last week to US$1,086 an ounce on the Comex, after touching US$1,073.70, the lowest since Feb 2010. Most-active prices were at US$1,095.80 on Monday after rising 0.9 per cent. The MSCI All-Country World Index of equities declined 2.1 per cent last week as the Bloomberg Dollar Spot Index gained 0.1 percent for the fifth straight advance.

Speculators held a net-short position of 11,345 contracts in the week ended July 21, according to U.S. Commodity Futures Trading Commission data published three days later. Bearish wagers climbed 12 per cent to 121,238.

The price rout has been a part of a broader slump in commodities, as everything from oil to copper to sugar tumbled, signaling inflation should remain subdued. The Bloomberg Commodity Index retreated 4.4 percent last week, reaching a 13- year low.

BLOOMBERG