"Oil in, gold out" -- the new "choice" for hedge funds

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While hedge funds are increasing their holdings in crude oil, they are substantially cutting their long positions in gold.

According to Wallstreetcn, in the week ending February 3rd, fund managers raised net long positions in Brent crude oil to nearly a ten-month high. During the same period, net long positions in gold dropped to a fifteen-week low. This "oil-in-gold-out" action reflects subtle changes in market risk preferences.

This week, after chaos triggered by the crash in the SaaS industry led to heightened volatility across various asset classes, gold remains over 11% down from its historic peak in January, while crude oil is up more than 13% from its low this year.

(Recent asset performance)

Ongoing tensions between the US and Iran have prompted investors to increase crude oil long bets for four consecutive weeks to hedge against potential supply disruption risks. Meanwhile, after gold’s wild surge in January—breaking historical records repeatedly—it suffered its largest single-day drop in over a decade last week, forcing hedge funds to sharply reduce their positions.

The crude oil options market shows deeper bullish sentiment. The premium of WTI crude oil call options over put options hit its highest since 2022 at one point this week, and a major oil-linked ETF recorded the largest inflows since 2020.

Iran risk drives crude oil positions higher, gold longs see steep reduction

In the week ending February 3rd, fund managers increased net long positions in Brent crude oil by 31,332 contracts to 278,249 contracts.

Data from ICE Futures Europe shows this is the highest level in nearly ten months. According to the US Commodity Futures Trading Commission, bullish bets on WTI crude oil also rose to a six-month high.

Continued tensions between the US and Iran are the main drivers behind this trend. The two countries faced off at sea and in the air on Tuesday, briefly reigniting risk premiums.

Wallstreetcn notes that although this premium ultimately weakened as plans for nuclear negotiations took shape, traders are still hedging against supply disruption risks from this OPEC member.

In stark contrast to crude oil, hedge funds and other large speculators cut net long positions in gold by 23% to 93,438 contracts, the lowest since October last year.

The surge in gold and silver that repeatedly broke historical records last month came to an abrupt halt at the end of last week, with the market generally believing that the gains were too much too fast.

On January 30, gold experienced its largest single-day drop since 2013, and has since struggled amid extreme volatility to stabilize. This sharp correction prompted fund managers to quickly adjust their positions, significantly reducing bullish bets on precious metals.

Risk Warning and DisclaimerThe market carries risks and investment should be cautious. This article does not constitute individual investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should evaluate whether any opinions, views, or conclusions in this article suit their personal situations. Investment decisions based on this article are at your own risk. ```