Gold Wagers Gain as China Rate Reduction Stems Rout

By Joe Deaux
Hedge funds added bullish gold wagers at the fastest pace since June as central bank action from China to Japan and Europe helped stem the rout in prices.

The net-long position in New York futures and options expanded 56 percent, U.S. government data show. Short holdings fell to a two-month low and long wagers climbed for the first time in four weeks.

Prices touched a three-week high Nov. 21 after China lowered its key interest rate for the first time since July 2012. The European Central Bank and Bank of Japan also added stimulus to shore up expansion. Gold dropped on Nov. 7 to the lowest level since 2010 as a strengthening U.S. economy and dollar fueled bets the Federal Reserve is moving closer to raising borrowing costs.

“Stimulus activity from China and Europe more than supports demand for gold,” Dan Denbow, a money manager at the $800 million USAA Precious Metals & Minerals Fund, said Nov. 21 by phone from New York. “Think of it like a level: gold is the bubble moving back and forth. One day gold is focusing on the U.S. dollar, and that would push the bubble down, but all these stimulus measures come in, and that would push the bubble up.”

Futures climbed 1.1 percent to $1,198.40 an ounce last week on the Comex in New York. The Bloomberg Commodity Index of 22 raw materials advanced 1.1 percent as the MSCI All-Country World Index of equities gained 1.2 percent. The Bloomberg Dollar Spot Index rose 0.7 percent. Bullion fell 0.2 percent to $1,196.10 at 12:11 p.m. today in New York.

Gold Wagers

The net-long position in gold rose by 21,634 contracts to 60,307 futures and options in the week ended Nov. 18, according to U.S. Commodity Futures Trading Commission data published three days later. Short wagers fell to 65,405 contracts, the least since Sept. 9.

Easing by the People’s Bank of China came weeks after the BOJ boosted its asset-buying and hours after President Mario Draghi said the ECB must drive faster inflation and will broaden its asset-purchase program if needed. While dollar-denominated gold is little changed this year, bullion priced in yen has climbed 12 percent and in euros 10 percent.

Russia’s central bank bought about 150 metric tons of the metal this year, Governor Elvira Nabiullina said Nov. 18. Purchases were about 77 tons in 2013, International Monetary Fund data show…