We report updates from BAML’s hedge fund monitor from time to time, these give valuable insights into what hedge funds are buying and selling and consequently helps in assessing the market’s mood. Based on data from CFTC, SocGen has arrived at some astute conclusions about the current state of hedge fund mindsets.

The slowdown in China and its possible ramifications has been a deciding factor among hedge fund positions. Pessimistic views on China’s future have resulted in reduced buying interest in metals and mining related equities, oil, platinum and other metals are down from their peaks. Copper has also been a target of bearish interest, hedge funds have become net sellers of copper.

Hedge Fund Commodity Trends

The story of Gold’s consistent decline and the resultant selling has been rehearsed quite a few times now, SG reports that the net long positions in the commodity have been cut to half since September. In addition to positions reported by CFTC, we also noted that hedge funds’ long positions in SPDR Gold Trust (ETF) (NYSEARCA:GLD) have fallen to their lowest in four years. Recently selling interest in Gold has also hit new highs in Europe while short interest in the lustrous commodity has increased and is the highest since 2006.

Gold Long Short Positions

Commercial buyers are net short on Gold while money managers have a net long interest in Gold. The declining price of Gold is not the only reason that has reversed Gold’s attraction, US is achieving gradual stability and fiscal easing has delayed the risk of a meltdown in Europe, as a result investors are seeing less use of Gold as a hedge in an environment where markets are rallying.

Among equities hedge funds are touching new highs in their long interest in S&P 500 (INDEXSP:.INX) and Japan Nikkei index for different reasons. The extreme bullish positioning in the S&P 500 (INDEXSP:.INX) is of course due to the strong likelihood of further easing from thr Federal Reserve. The net buying interest in the index is at its peak since 2009. On the other hand net short interest on VOLATILITYS&P500 (INDEXCBOE:VIX), which implies how much investors fear volatility on the S&P 500, is peaking as well.

Hedge Fund Long S&P 500

Japan however has attracted investor interest because of its recent vow to achieve a higher inflation target and weaken yen as much as possible. Hedge funds became net buyers of NIKKEI 225 (INDEXNIKKEI:NI225) as the new year kicked in. Such aggressive buying into Nikkei was seen only in April 2011 before.

Hedge Funds Buy Nikkei

We will follow up with another report on hedge fund positioning in forex and treasuries later, stay tuned.