On Monday, the gold price continued to drift sideways as a measure of calm returned to global equity markets and the focus shifted back to a recovering US economy.

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In afternoon dealings on the Comex market in New York, gold futures with December delivery dates lost $0.70 to $1,133.40 an ounce in quiet trade.

Gold is still well above a more than five-year closing low of $1,084 struck August 5 as China's economic woes and shock currency devaluation sent ripples through markets. But the safe haven buying amid the panic on markets did not materialize to the extent many bulls had hoped.

One explanation why bullion did not attract money fleeing equities and bonds can be found in the positioning by hedge funds on the New York futures market.

By Black Monday, speculators on the gold futures market were well positioned to go bearish on bullion again and stop the momentum of safe haven buyers

In late July and early August in the run up to the wild swings on global markets, large speculators on Comex – referred to as "managed money" – entered bearish positions not seen since at least 2006, when the Commodity Futures Trading Commission first began tracking the data.

According to the CFTC's weekly Commitment of Traders data for the week to August 18 speculators' short positions – bets that gold could be bought cheaper in the future – were cut by more than a million ounces to 10.4 million ounces (295 tonnes); down from record levels of more than 330 tonnes hit last month. At the same

At the same time a modest number of long positions were added which means speculators held a net long or bullish position, albeit a small one, for the first time in three weeks.

In the latest data up to Tuesday – the day after Black Monday – last week these short positions were cut by a further 22% which was accompanied by a 845,000 rise in long ounces which saw the net position increase nearly four-fold.

Saxo Bank explains in a research note on Monday from Ole Hansen, the Danish bank's head of Commodity Strategy, why this movement is a bearish indicator for the gold price:

Delving into the data we find that most of the jump in net-long was driven by another big clear-out of short positions. This put to rest, at least for now, the belief that the rally was driven by safe haven demand. It also helps to explain why the price action so quickly turned negative with short sellers having fresh ammunition to pounce after having cut bearish bets by one-third during August.


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