Crude Oil Hits Gold, But Comex Trading Most Bullish Since Record Price Peak

The GOLD PRICE recovered from another drop through the $4000 level on Monday but continued trading almost 30% below the all-time highs of 6 months ago, the last time that hedge funds and other speculative traders held this many bullish bets on US Comex gold futures and options, writes Atsuko Whitehouse at BullionVault.

Dipping through $4000 in London and falling as low as $3986 per troy ounce on Comex August futures contracts, the price of gold in US Dollars dropped as crude oil prices jumped more than 3% to a 5-week high above $90 per barrel amid the latest escalation in airstrikes across the Middle East plus growing fears of a possible US ground invasion of Iran.

Crude oil then fell hard after Tehran today said it remains open to cease-fire talks with the United States, sending gold prices jumping to $4040.

But that move quickly reversed again, with Brent crude trading back above $88 per barrel for September delivery while gold prices dropped $30 per ounce after Iran-backed Houthi rebels in Yemen declared a "sea navigation embargo" against US-ally and Yemeni-Government supporters Saudi Arabia.

"Asia open[ed] Sunday night into that oil bid, which is usually a headwind for precious metals/gold on relentless CTA selling," said Nicky Shiels, head of metals strategy at Swiss refining and finance group MKS Pamp, of 'Commodity Trading Advisor' products.

But "gold [last week] attracted modest net buying despite a weekly price decline, highlighting continued strategic interest from money managers," says derivatives platform Saxo Bank's commodity strategist Ole Hansen of the latest US futures and options positioning data.

Data for the week-ending 14 July, gathered and published by US regulators the CFTC, show that hedge funds and other leveraged speculators in Comex gold futures and options expanded their bullish positioning in gold to the highest level in nearly 6 months, while cutting bearish bets from a 4-week high.

Together, that pushed the so-called Managed Money's net long position to its largest level since the end of January's record high gold prices by notional weight. But that, like now, was only just in line with both the 1-year and 5-year average for net bullish betting among speculative traders.

"We believe gold is likely to remain range-bound in the near term given elevated real yields and a strong US Dollar," says international bank and London bullion clearer HSBC, pointing to longer-term interest rates rising further above the pace of inflation in the bond market.

"We, however, anticipate further upside for gold by year-end," HSBC goes on, saying that investment demand for portfolio diversification, central bank purchases and steady inflows to exchange-traded funds backed by gold support its bullish view.

Among gold ETFs, however, the giant SPDR Gold Trust (NYSEArca: GLD) continued to shrink in size last week, with investor outflows cutting the quantity of bullion needed to back its shares 0.6% in July so far, down to the lowest level since last September and heading for the 5th monthly drop in a row.

The GLD's holdings are now 9.3% below the recent high at the beginning of March, just after the US-Iran conflict began.

No.2 gold ETF the iShares product (NYSEArca: IAU) has meanwhile declined 0.7% in size so far this month, also set for its 5th consecutive monthly outflow and shrinking 7.7% from start-March's high.

The price of silver also fell at Monday's opening before rising 2.8% to $56.80 per ounce by London lunchtime. This came after the more industrially useful precious metal had fallen 6.8% last week to its lowest level since the end of November.