Despite an underwhelming U.S. jobs report and turmoil in Greece, institutional investors are more bearish on gold prices now than at any point in history.
With China’s stock market in freefall and Europe on the brink of chaos, many analysts predicted that investors would seek the relative safety of precious metals. Those predictions have been wrong so far.
A recent report from the Commodity Futures Trading Commission (CFTC) shows that some of the world’s largest hedge funds are unloading their bullish positions on gold futures. The value of futures contracts fluctuate based on where investors think the asset’s price is headed. If they are optimistic, investors amass “long” positions; if they are pessimistic, they take “short” positions.
The CFTC report revealed a 55% reduction in bets that the price of gold will rise. In the week before June 30th, investors only bought futures for 2.15 million ounces of gold, or 21,480 lots. (Source: CFTC Commitments of Traders, June 30, 2015.)
To put that in perspective, investors went short on 9.87 million ounces. The downside wager on gold futures has never been this large.
The yellow metal has plunged more than 10% since its 2015 high back in January. The drop is unexpected in light of global uncertainty. In the past, commodities such as gold provided a safe haven for capital.
Long positions were over 14 million ounces higher during gold’s peak in January 2015. The last time long positions were as subdued was in October 2006. Gold prices hovered around $600.00 per ounce before they began a long rally to $1,900 in August 2011.