Funds' Bullish Gold Positioning Cut But Expected To Recover
(Kitco News)- Largespeculators slashed their bullish exposure to gold by 18% in the latest weeklydata compiled by the Commodity Futures Trading Commission, but the next roundof figures is likely to show that bulls have regained their footing after thelate-week price rally.
Thedata showed a record level of bearish positioning in silver, although this isalso likely to have been scaled back by short covering, analysts said. Shortcovering is when traders buy to offset bearish, or short, positions.
Net long or shortpositioning in the CFTC data reflect the difference between the total number ofbullish (long) and bearish (short) contracts. Traders monitor the data to gaugethe general mood of speculators, although excessively high or low numbers areviewed by many as signs of overbought or oversold markets that may be ripe forprice corrections.
Duringthe week-long period to March 20 covered by the most recent report, Comex April gold fell to $15.90 to $1,310.90an ounce, while May silver fell 41.5 cents to $16.18.This came ahead of a meeting of the Federal Open Market Committee, with themetals showing a tendency in recent years to ease ahead of expected Fed ratehikes. Policymakers in fact did hike the Federal funds rate by another 25 basispoints.
Since,however, April gold has risen to as high as $1,351.20 so far Monday, while Maysilver climbed as high as $16.675 on Friday. This led to expectations that thenext round of CFTC data, for the week through March 27, will show gold bullishpositioning increased again.
“Aftera week in which Comex net-long futures positions fell to the lowest since late2017, there is likely to have been a substantial change in investor positioning- with some short covering perhaps combined with new longs,” said JonathanButler, precious-metals strategist with Mitsubishi.
Theprice recovery started in the middle of last week when the Federal Reserve wasnot as hawkish as feared following a monetary policy meeting. The rally gotanother catalyst during the final two days of the week on increased worriesabout a trade war between the U.S. and China.
Thepost-Fed rally began when market participants saw that the Fed’s so-calleddot-plot showed that policymakers still expect only three rate hikes in 2018, while“economic projections showed evidence of a willingness to allow inflation toovershoot,” said strategists at TD Securities. “This suggests the Fed will optto follow a ‘go-slow’ approach to increasing rates, and along with equitymarket and trade fears, likely convinced specs to add back length across theprecious-metals complex.”
The CFTC’s “disaggregated” report forthe week through March 20 shows that the net-long position of money managers ingold fell to 111,807 lots from 135,865 the week before. This occurred due toboth long liquidation, as reflected by a decline of 14,185 gross long positions,as well as fresh selling, reflected by a 9,873 rise in short positions.
In the case of silver, the net shortposition rose to a record 35,833 lots from a net short 16,415 the week before.The bulk of the increase was fresh selling, as the number of gross shorts roseby 13,752. There was also some long liquidation, as total longs fell by 5,666.
“Speculators aresignificantly more pessimistic towards silver; net shorts here were more thandoubled to a record high of 35,800 contracts in the last period under review,which may explain why the gold/silver ratio has risen to 81,” Commerzbankanalysts said in a report. The ratio means it now takes 81 ounces of silver tobuy an ounce of gold.
“That said, gold and silverprices recovered noticeably after last week’s Fed meeting, though this is notyet reflected in the current statistics,” Commerzbank said. “Speculativefinancial investors are therefore likely to have changed their positioningagain in the meantime.”
Butler, commenting that silver-futurestraders became “extremely bearish” ahead of the Fed meeting, pointed out that grossshort positions in the metal hit the highest level since July 2017.
“Shortcovering is likely to have occurred during the recovery of prices since then,”Butler added.
For Kitco News
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