Hedge funds wrong on gold bet as prices drop

Hedge funds just mistimed their gold bets. Money managers as of Tuesday pushed their wagers on a bullion rally to the highest in seven weeks. The next day, Federal Reserve policymakers signalled more interest-rate increases this year than earlier projected. Gold ended up posting a weekly loss as the dollar rallied.

Bullion has been stuck in the doldrums for most of this year as the outlook for higher borrowing costs dimmed prospects for the metal, which doesn’t pay interest. Even rising trade tensions between the US and China that sent equities and bond yields tumbling Friday weren’t enough to boost gold’s haven appeal as the metal fell the most in 18 months. Geopolitical risks that previously supported prices are also fading after President Donald Trump met with North Korean leader Kim Jong-un.

“We have been cautious about gold just because we still see a stronger dollar and the Fed raising rates as headwinds,” said Rob Haworth, a Seattle-based senior investment strategist at US Bank Wealth Management, which oversees $154 billion (Dh565 billion).

Fund wagers

In the week ended June 12, money managers boosted their net-long position, or the difference between bets on a price increase and wagers on a decline, by 11 per cent to 64,572 futures and options, according to US Commodity Futures Trading Commission data released Friday.

Long-only wagers climbed 3.9 per cent. The short holdings fell 4.7 per cent in a fourth straight decline, the longest slide since September.

Gold futures for August delivery dropped 1.9 per cent in the week ended Friday to $1,278.50 an ounce on the Comex in New York, the second decline in three weeks.