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Why Hedge Funds Are Increasing Their Short Positions in Gold

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Precious slump

Gold futures for January expiration fell 0.43% on Tuesday, December 13, and closed the day at $1,239.8 per ounce. Silver fell 0.75% the same day, ending at $15.6 per ounce. But platinum was the biggest loser among the four precious metals, falling 1.9% to end the day at $875.7 per ounce, while palladium actually rose 0.36% and closed the day $1,013.2 an ounce.

Gold has now seen a 30-day trailing loss of ~2.5%. Gold has a five-day trailing loss of 1.9% for the same time frame, and the US dollar (UUP), as depicted by the currency index, has risen 0.77%.

Hedge fund  positions

Many hedge funds have increased their gross short positions in gold, now that the metal has been dropping so significantly. According to CFTC (US Commodity Futures Trading Commission) data, hedge funds dumped a net of 64,257 lots of gold futures. Remember, gold prices are lower than we’ve seen for the past five months.

It seems likey as well that the December FOMC (Federal Open Market Committee) meeting could end hawkish, which would be even more negative for gold (GLD) and precious metals. Kinross Gold (KGC), Eldorado Gold (EGO), Hecla Mining (HL), and Harmony Gold (HMY) most recently fell 0.52%, 2.4%, 0.83%, and 2.4%, respectively.

New Fed Chair Jerome Powell seems to be preparing to for the projected expected trillion-dollar tax cut, which could have a positive impact on the US dollar but would be negative for gold and other precious metals. However, inflation remains a concern for the Fed in general.

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