Contrarian alert: Time to buy bullion as gold bulls have all left town

(Bloomberg) – Janet Yellen’s optimism about the U.S. economy is making gold speculators the least bullish on record.

Money managers are holding the smallest net-bullish bet on gold since the U.S. government data begins in 2006. They’re also dumping silver, platinum and palladium, and combined net-long wagers across the metals are the lowest ever. About $2.1 billion was erased from the value of exchange-traded products tracking the commodities last week, the most since March.

Gold futures dropped to the lowest level since 2010 on Monday, and Barclays Plc recommends that investors short the metal and go long on the dollar. With Federal Reserve Chair Yellen repeating that she’s ready to raise U.S. interest rates this year, investors are dumping precious metals that don’t pay interest or offer returns like competing assets.

“We are seeing some capitulation in the precious-metals market as it believes that the rate hike is coming in September,” Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $128 billion of assets, said by phone. “It was very surprising to see that even the turmoil in Greece and China were not able to lift prices.”

Price Slump

Gold futures dropped 2.3 percent to $1,131.90 an ounce in New York last week, and in early Monday trading fell as much as 0.3 percent to $1,128.20, the lowest price since April 2010. The MSCI All-Country World Index of equities gained 2 percent last week, while the Bloomberg Dollar Spot Index added 1.6 percent.

The net-long position in gold tumbled 39 percent to 4,633 futures and options in the week ended July 14, U.S. Commodity Futures Trading Commission data released Friday show. Combined wagers for gold, silver, platinum and palladium fell 16 percent to 12,875, the lowest since the figures start in 2009.

In New York, gold futures fell for an eighth straight day on Monday, the longest rout since 2009. China said that it boosted bullion assets to about 1,658 metric tons, less than brokers at GoldCore Ltd. and Sharps Pixley Ltd. expected.

Europe Stimulus

While the U.S. is preparing to tighten monetary policy, regions including Europe and Japan are sticking with stimulus to boost growth. Gold prices in euros have climbed about 7.5 percent in the past year, while in yen the metal is up more than 5 percent. Futures in New York dropped 14 percent in that time.

The U.S. central bank’s benchmark rate has been near a record low of zero percent since 2008. Officials next meet in September.

“Gold may find some support from purchases in Europe and Japan and China,” said Jim Russell, a Cincinnati-based portfolio manager at Bahl & Gaynor Inc., which has about $14 billion under management and advisement. “In the long term, precious metals may see increased industrial demand as the stimulus measures adopted by various countries start paying off.”

Precious metals have languished even as Greece fought over a debt deal with its creditors and a rout in Chinese equities erased almost $4 trillion in market value. Gold and silver have historically been bought as haven assets.

Options trading shows that some investors are expecting more declines. The five gold contracts with the most volume on Friday will all pay out if prices drop further.

“The Fed’s decision to restock the rate toolkit has got the gold market very nervous,” George Zivic, a New York-based portfolio manager at OppenheimerFunds Inc., which oversees $235 billion, said by phone. “We have already seen that gold did not perform as a safe-haven investment. There is not a single motivating reason to own gold.”