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Friday, August 21, 2015

Hedge Funds Now Bullish On Gold

Institutional investors, including hedge funds, have reversed their aversion to gold, as they are now betting on the precious metal to move up again, according to the Commodity Futures Trading Commission.

On August 18 they surpassed gold futures and options contracts betting against gold by 18,454, said the CFTC. A week before bears had 2,794 futures and options contracts than gold bulls.

Much of this came from the stock market crash in China, and was heightened further by Chinese exports plunging by 8 percent, pointing toward the country probably being in the early stages of a recession. It also generated questions as to how healthy China's economy has really been, and whether or not the data reported was even less accurate than had been believed.

Japan has also been struggling, along with the rest of Asia. Countries more heavily reliant on natural resources, such as Canada and Australia have also been suffering a reversal in fortunes, as commodity demand has been falling.

All of this is happening in the midst of a currency war, as many nations with significant export markets fight to weaken their currencies in order to boost exports.

Recent numbers from media also show that sector is under strain, with ESPN losing a moderate number of subscribers.

Taken together this has increased the probability the Fed will hold off on raising interest rates. That's likely to play out that way, and if things get worse, we may not even see a bump up in the interest rates.

Combined with a strong U.S. dollar, which is starting to put pressure on U.S. exports, as data from the New York Fed recently stated that region of the country failed to meet expectations, it would be very surprising to see a change in interest rates by the Fed.

Things are falling apart so quickly, it's hard to see how gold prices can be suppressed going forward. Instead of an interest rate hike, we may be seeing talks of another round of quantitative easing instead.

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