Hedge Funds Reduce Bullish Gold Bets as `Big Boys Are Starting to Get Out'

Date: Tuesday, January 18, 2011
Author: Pham-Duy Nguyen, Bloomberg

Hedge funds reduced their bullish bet on a gold rally to the lowest level since July 2009 after the metal climbed for 10 straight years.

The funds and other large speculators held net-long positions, or wagers on rising prices, totaling 144,236 contracts in the week ended Jan. 11 on the Comex in New York, U.S. Commodity Futures Trading Commission data showed on Jan. 14. The holdings fell 9.1 percent from a week earlier following a 6.7 percent drop in the previous week.

Gold futures reached a record of $1,432.50 an ounce on Dec. 7 as central banks kept interest rates low and Europe’s debt crisis spurred demand for the metal as a haven. The price has jumped more than fivefold from the end of 2000 to Dec. 31.

“There’s been a lot of profit in gold, and people are getting nervous that there might not be more,” said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. “The big boys are starting to get out. They know that these prices aren’t cheap in anybody’s mind.”

Gold for February delivery settled on Jan. 14 at $1,360.50 an ounce, the lowest closing price since Nov. 22, and the contract was little changed at $1,361.50 an ounce at 7:56 a.m. in London today. Spot gold was also little changed at $1,362.32.

Holdings in 10 exchange-traded products backed by gold fell for the fourth straight week to 2,077.81 metric tons. Funds held a record 2,114.6 tons on Dec. 20.

European Central Bank President Jean-Claude Trichet has signaled that borrowing costs may increase should inflation accelerate.

“Interest rates are going to be rising worldwide,” Kaplan said. “I’m not convinced it’s over for gold yet, but it’s very close.”

Managed-money positions include hedge funds, commodity- trading advisers and commodity pools. Analysts and investors follow changes in speculator positions because such transactions may reflect an expectation of a change in prices.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net