NEW YORK -- With gold prices tumbling to a five-year low, investors aren't just getting out of gold; they're betting against it.
Speculators so far in July have amassed record short holdings in the metal, meaning they're wagering that the price has further to fall. Also telling, the number of hedge funds that are hoping to profit from declines is near a record high.
Altegris Investments' $513 million Futures Evolution Strategy Fund has increased its bets that gold will fall.
"The only place to be right now is short," said Lara Magnusen, a La Jolla, Calif.-based portfolio strategist at Altegris. "We've been in persistently downward price action for gold, but it's been exacerbated, certainly, this year by a host of fundamental reasons."
It's been a painful two years for gold holders, who by the end of 2012 had accumulated a record position after piling into gold exchange-traded funds and similar investments backed by the metal. Since then, more than $84 billion has been erased from the funds' value, and their assets have dropped to the lowest level since March 2009.
After drifting lower for most of 2015, prices plunged in July, dropping every week this month. Gold futures for August delivery closed at $1,098.50 an ounce on the Comex on Friday. The price touched $1,080 on Monday, the lowest since February 2010, and is down 16 percent in the past 12 months.
One factor in the decline was Federal Reserve Chairman Janet Yellen confirming that the U.S. central bank will raise interest rates this year. Higher rates can draw investors toward bonds and away from gold. The prospect of higher rates is also bolstering the dollar, and a strong dollar tends to keep a lid on inflation, which also diminishes gold's appeal as a hedge against rising prices.
The low prices have yet to spur more buying in Asia, where Indian brides and Chinese aunties -- as middle-aged matriarchs are respectfully known -- are usually avid consumers.
The collapse in gold prices is part of a general commodities slump. And adding to the metal's woes, prices for everything from copper to oil to sugar are in a meltdown that's signaling inflation will probably stay subdued. The Bloomberg Commodity Index dropped to a 13-year low Wednesday.
Unlike other commodities, gold typically benefits from uncertainty in the world economy. Yet neither the Greek bailout negotiations nor the Chinese stock rout that erased $4 trillion in wealth spurred investors to seek shelter in gold.
Some die-hard gold fans are using the recent slump as an opportunity to add to holdings. Sales of American Eagle coins at the U.S. Mint in July are heading for the biggest monthly total since April 2013, when prices first fell into a bear market. Demand has also increased at the Royal Canadian Mint.
SundayMonday on 07/26/2015