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Hedge funds dump gold bets before jobs data spark rally

New York

HEDGE funds are looking like fair-weather friends when it comes to gold. Investors dumped their bullion holdings as the metal flirted with erasing its 2019 advance.

But the move could prove to be premature. Last Friday, prices got a jolt after a report showed that US hiring in February was the weakest in more than a year. The news helped gold push back above US$1,300 an ounce amid renewed demand for a haven.

Gold has been caught in a tug of war. Four straight months of price gains amid economic hand-wringing gave way to losses in February as the US dollar gained traction.

Investors are having to pick sides, said Chad Morganlander, a portfolio manager at Washington Crossing Advisors, which oversees US$2.5 billion. "I caution investors not to be so negative on haven assets, in particular as we start to see signs of the global deceleration," he said, adding that Friday's US jobs report could be a harbinger of things to come.

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"Over the next three to six months, the trading perspective will start to shift to be more risk averse."

In the week ended March 5, hedge funds cut their gold net-long position by 54 per cent to of 47,872 futures and options, according to US Commodity Futures Trading Commission (CFTC) data published on Friday.

The holding, which measures the difference between bets on a price increase and wagers on a decline, was the lowest in six weeks. The move came as short holdings jumped 21 per cent, the most since July.

Even while investors have trimmed their bullish holdings, they are still betting on price gains. The funds have been net-positive since early December.

Friday's job numbers represented "a potential buying opportunity for gold", Will Rhind, the chief executive officer at GraniteShares Gold Trust, said in an interview at Bloomberg headquarters in New York.

"We have a world which is slowing, and you have central banks around the world loosening monetary policy for that precise reason."

Other highlights from the CFTC data on commodities:

  • Corn: Hedge funds increased their net-short corn holding to 176,777 contracts. That is the most bearish since January 2018.

May corn futures dropped to a record low last Friday in Chicago on signs that American silos are bulging with excess inventories. The US government pegged domestic inventories higher than analysts had forecast, and cut its outlook for use of the grain in biofuel.

Even though there is more capacity to produce ethanol in the US than ever, low biofuel prices and comparatively higher costs for corn have made it difficult for producers to profitably operate facilities.

  • Wheat: Investors became more bearish on wheat as the world faces a global glut of the grain. The net-short holding reached 72,449 contracts, the most negative outlook in 11 months.

Global competition is ratcheting up for grain shipments, much to the chagrin of American farmers. US exports of corn and wheat will be smaller than previously predicted, the Department of Agriculture said Friday.

Favourable weather from Russia to North America has led to optimistic crop forecasts for the coming season and, in its first outlook for 2019, the United Nations has said that global wheat output may climb 4 per cent. BLOOMBERG

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