Fat Fingers, Weak Market Indexes Fail to Contain Gold’s Rise

Gold hedge funds are raising their bullish bets on the precious metal to a six week high, according to Bloomberg news. Data from the U.S. Commodity and Futures Trading Commission show the net long position in gold jumping by 19% to 34,104 futures and options in the week ended December 31, 2013.

The increasing interest by hedge funds contrasts markedly with technical research conducted by Research Advisors LLC, Goldman Sachs, UBS and a slew of other investment firms whose negativity regarding the precious metal seemingly knows no bounds.

SchniderDominic Schnider, Head of Nontraditional Asset Classes at UBS Wealth Management, forecasts that gold could decline to $1050 this year, an estimate he premises on what he considers to be almost certain rates hikes by the U.S. Federal Reserve in 2015. (Goldman Sachs is approximately in the same camp price wise).

This despite assurances from the Fed, Bank of England and virtually every other central bank on the planet that rates will be kept low for quite some time. The anemic economic recovery, particularly in the United States and Europe, supports this continuing low interest rate thesis and in fact any downturn in the tepid economic recovery in the U.S. could open the flood gates to further easing. One somewhat alarming piece of news out today was the slower-than-forecast growth in service industries which is a major source of U.S. employment.

It’s been a slow start to the year for the S&P 500 and Nasdaq composite indexes which have yet to post a gain in 2014. Analysts note that the last time the S&P fell for thee consecutive trading days was back in 2005. Gold on the other hand has been showing some long overdue strength. Despite a so called “flash crash” early Monday, which saw 4200 contracts sending February gold down $30 in heavy volume – triggering a trading halt in the process – gold recovered and ended the day slightly higher.

Whether the trade was a “fat finger” accident or an attempt to manipulate the futures market is an interesting question. Nonetheless, the frequency of these type of trades in the early morning would lend support to the latter scenario.

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