uploads///Front Month Gold Futures  Month Price Evolution

Wagers on Gold Drop: What’s Next?

By

Updated

Economic numbers

Some important core economic numbers that came out on Friday, May 27, 2016, include the preliminary first quarter US GDP, which remained in line with projections of 0.8% expansion. The preliminary GDP price index over the same period rose 0.6%, remaining marginally lower than the forecast figure of 0.7%. The FOMC (Federal Open Market Committee) may be carefully eyeing GDP since an interest rate hike is highly dependent on the country’s economic performance. The Fed could be looking at two hikes in the current year.

The stronger the economic number, the faster the rate hikes could come. At the same time, gold and other precious metals would experience more weakness.

The 2016 gains in precious metals are slowing being erased for precious metal–based funds such as the Sprott Gold Miners ETF (SGDM) and the leveraged ProShares Ultra Silver (AGQ). These two funds have fallen 14.3% and 18%, respectively, over the past 30 days.

Article continues below advertisement

Gold wagers decline

After the Fed hinted that it could raise interest rates as early as June, hedge funds and money managers cut their bullish bets on gold futures and options to the lowest in almost two months. The net-long position in gold futures and options fell 26% to 169,491 contracts in the week ended May 24.

Mining shares that fell on Friday, May 27, include Barrick Gold (ABX), Newmont Mining (NEM), and Agnico Eagle Mines (AEM). They fell 3.7%, 5.3%, and 4.4%, respectively. Together, these three stocks make up 17.1% of the VanEck Vectors Gold Miners Fund (GDX).

Next, let’s see how miners and technicals are trending.

Advertisement

More From Market Realist