Hedge Funds Look for Safety in Gold; JP Morgan Owns 60% of US Gold Derivatives

by on February 3, 2014 4:24 am BST

Gold has generally been categorized as a safe-haven asset, where investors head to for safety; and copper has been a play on growth, and a play on China. Now, hedge fund risk appetites are satiated as equities begin to topple on less than expected growth out of China and US corporate earnings. Money managers are beginning to dump the growth play of copper and head to gold as net-long gold positions increased a whopping 40 percent, 60,672 contracts, in the week that ended on January 28, according to data provided by the Commodity Futures Trading Commission (CFTC).

As gold pealed back from technical levels, around $1,265 per ounce, bullish bets increased by 5.5 percent with bear positioning declining 16 percent. What is interesting – thinking back to all those optimistic analysts in 2013 taking about future growth – copper longs fell 62 percent, and shorts increased by the most in 11 weeks.

The whole emerging market space has wrecked outlooks as $1.9 trillion has been erased from the value of global equities. “China rules the copper market, and it’s obvious that there are no reasons for this market to move higher as supply is ample, and demand is sluggish,” said Peter Jankovskis, co-CIO of Lisle. “Gold, on the other hand, is seeing some buying given the turmoil in many countries, but what remains to be seen is if the rally can sustain in the face of tapering,” he continued.

It has brought to light, with the help of ZeroHedge, that JP Morgan has cornered the gold market as the master manipulator owned 60 percent of all US gold derivative, $65.4 billion of the notional $108.2 billion market value. Citigroup was runner up with just over $16 billion on their books.

Last time JP Morgan owned the majority of a market was when trader Bruno Iksil, the London Whale and known for extremely large positioning, had an oversize position in  CDX IG 9, a credit default swap index. When his position was known and fundamentals began to change, traders (even some within JP Morgan) began to trade against Iksil, and Iksil’s position ultimately cost JP Morgan over $6 billion in losses.