Gold Remains Dull in the Eyes of Hedge Funds; Commodity Holdings Fall

by on November 11, 2013 2:37 am BST

Gold closed below $1,300 per ounce last week as fears of an ongoing low-inflation environment will continue with the Federal Reserve potentially tapering by the end of 2013. The “U.S. economy is showing ample signs that it is growing, and that means the Fed will start looking at tapering either end of this year or early next year,” said Dan Heckman of US Bank Wealth Management.

This very outlook is causing money managers and hedge funds to reduce their net-long positions in gold while adding the most net-short contracts in four weeks, increasing by 37 percent. Although, commodities across the board slid to the downside. Combined commodity holdings declined 20 percent with cotton and crude leading the declines.

Gold has been fickle and not able to gather much momentum, ranging between $1,270 and $1,400 per ounce. This year gold is looking to see it’s first annual decline in over a decade and currently down 23 percent.

The S&P GSCI Spot Index, a basket of 24 commodities, declined .4 percent last week reacting adversely to the rise in the dollar index.

According to Goldman Sachs, gold is expected to hover the $1,300 per ounce mark and then fall to $1,050 by the end of 2014. A report by Goldman Sachs analyst, Jeff Currie, gold will fall due an increase in economic activity.

There has been physical demand for gold at these levels, but it has little effect given the large paper market present in the gold price. With increased purchases from Turkey, China and India, gold is still declining.

“Commodities will struggle to find a balance with supplies rising as demand remains stable and, in some cases, falling,” said Paul Christopher, a strategist at Wells Fargo Advisors LLC.