Hedge Funds Net-Short Gold First Time in History; Contrarian Views

After being net long all the way from $1900 to $1100, Bloomberg reports Hedge Funds Are Holding First-Ever Gold Net-Short Position.

Hedge funds are holding the first ever bet on a decline in gold prices since the U.S. government started collecting the data in 2006.

The funds and other speculators shifted to a net-short position of 11,345 contracts in New York futures and options in the week ended July 21, according to figures from the U.S. Commodity Futures Trading Commission.

Gold futures on Friday fell to the lowest since 2010 on the Comex, and the short wagers show investors expect the rout to deepen.

Goldman Sachs Group Inc.’s Jeffrey Currie says the worst is yet to come for gold, and that prices could fall below $1,000 an ounce for the first time since 2009. “The risks are clearly skewed to the downside,” Currie, the bank’s New York-based head of commodities research, said in a phone interview Tuesday.

Currie isn’t alone in predicting more declines. ABN Amro Bank NV’s Georgette Boele and Robin Bhar of Societe Generale AG say bullion will approach $1,000 by December.

Contrarian Views

From a contrarian point of view, this sure seems like good news to me.

Also, my friend Pater Tenebrarum at the Acting Man blog pinged me with this thought: "Yesterday, the entire gold futures curve out to December traded in backwardation to cash. This is never supposed to happen in gold, and is a sign that physical demand is far stronger than futures prices would indicate."

Strong negative sentiment is a prerequisite for a strong rally. It would be far worse if everyone was bullish during this decline.

However, and as I have noted before, sentiment is not a timing issue. And to answer reader questions in advance, I am still holding. If I were to do anything here it would be to add. I still like the long-term prospects.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com