Hedge funds and other big speculators in commodities have started selling gold in a big way, trade data showed on Friday, just a month after they had supported the precious metal amid a record tumble in its price.
Money managers, including hedge funds, pulled $1.4 billion from the U.S. gold futures market for the week ended May 14 by trimming their net long positions in the metal, according to Reuters calculations of data released by the Commodity Futures Trading Commission (CFTC).
Just a month ago, CFTC data showed hedge funds had added to their net long positions in U.S. gold futures despite a record loss in bullion prices at that time due to a broad commodities selloff triggered by global economic worries.
The spot price of gold fell to below $1,340 an ounce in mid-April, losing over 8 percent or more than $125 in a single day. The selloff was mitigated by buying support later in the week from consumers attracted to the drop in prices for gold bars, coins, nuggets and jewelry. Gold futures then shot back up, to above $1,400.
Since then, they've fallen again, closing on Friday at below $1,365 an ounce.
"I think hedge funds have begun accepting the fact that deflation is a bigger threat to the U.S. economy now than inflation. So, the argument of owning gold as an inflation hedge no longer holds water," said Adam Sarhan, chief executive at New York-based investment advisory Sarhan Capital.
Open interest, a measure of market liquidity, fell more than 3 percent in the week to May 14 for gold contracts traded by money managers on the COMEX division of the New York Mercantile Exchange, the CFTC data showed.
In terms of actual contracts, the net long position held by money managers fell 10,043 to 39,216. Based on COMEX closing prices for May 14, Reuters calculations showed a net outflow of about $1.4 billion from the drop.
In mid-April, after hedge funds had rushed in to buy gold, open interest for the precious metal on COMEX jumped by a staggering 24 percent.
On Friday, gold fell for a seventh straight session, its longest losing streak in four years, as the dollar rose to the highest since 2008 after some Federal Reserve officials said the central bank should end its stimulus for the U.S. economy.
Ultra low interest rates and hundreds of billions of dollars of Fed stimulus money have fueled higher prices for gold and other commodities over the past 3 years.
This year, gold's safe-haven lure been dulled by improving U.S. economic data, which included a May reading for consumer sentiment that stood at a near six-year high. Money has also been rotating out of gold into equity markets as U.S. stock prices hit record highs.
Exchange-traded products in gold - investment vehicles that give investors exposure to bullion through issuing securities backed by the physical metal - have seen huge outflows this year.
The largest, New York's SPDR Gold Trust, reported an outflow of another 5.7 tonnes on Thursday, bringing the drop in its holdings this week to more than 10 tonnes.
Some traders expect the current sell-off in gold to not let up until the market loses between $200 and $300 more. That would push prices to levels last seen in the first quarter of 2010.
"With a few more hard losing sessions, we could be down to between $1,050 and $1,100. It could happen over two weeks or it could happen in a couple of days if the market plunges $100 a dip," said Frank McGhee, head precious metals trader at Integrated Brokerage Services in Chicago.
(Editing by Andrew Hay and Lisa Shumaker)