Natural Gas and Gold Bets Turn Bearish

Montreal, Canada

The smart money says natural gas is heading lower. The fast money is betting against gold since late October.

Producers in the natural gas industry have turned markedly bearish on gas prices. Hedge funds and other speculators have also joined the bearish chorus amid a wave of new discoveries in the United States gas shales.

According to the Toronto-based Globe and Mail this morning, producers and merchants raised their net short positions on natural gas futures by 9.6% for the week ending January 19. That statistic, courtesy of the CFTC’s (Commodity Futures Trading Commission) Commitments of Traders report, pegs that wager as the fourth straight week traders have raised the ante against natural gas prices.

Natural gas prices have been enjoying a rally since last fall. Frigid temperatures in the Northeast and in Europe have boosted demand for gas. But producers don’t think prices will hold at current levels and have opted to sell on intermittent strength ahead of shoulder season, a seasonal phenomenon resulting in less gas consumption.

The bets against natural gas not only by speculators, but producers of the fuel, contrasts sharply with traders in the gold market after reducing their long positions by 29% since October — an all-time high for traders.

Gold prices are down about $90 an ounce this month and gold ETFs have suffered big outflows as investors bail out. But unlike natural gas producers – net sellers into current market strength – gold miners have eliminated their forward gold sales since last year, meaning the industry is heavily net long on gold prices. I’ll stick with the gold miners. That’s the smart money.

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