Speculators Slash Bullish Gold Position; Price May Be Due For Bounce
(Kitco News) - Money managers slashed their bullishpositioning in gold futures by 61% and flipped back to a net bearish positionin silver during the most recent reporting week for data compiled by theCommodity Futures Trading Commission.
“The CFTC’s statistics show thatspeculative market participants were significantly more pessimistic in the weekto 1 May,” said a research note from Commerzbank.
“In our view, the currently verypessimistic positioning suggests that prices will soon embark on acountermovement, as speculative financial investors normally follow a verypro-cyclical approach - i.e., they are positioned too pessimistically at pricelows,” the bank said. “If sentiment turns and short positions are covered, thisshould lend buoyancy to prices.”
During the week-long period to May 1covered by the report, Comex June gold fell $26.20 to $1,306.80 an ounce. Julysilver fell by 66 cents to $16.127.
Net long or short positioning in theCFTC data reflect the difference between the total number of bullish (long) andbearish (short) contracts. Traders monitor the data to gauge the general moodof speculators, although excessively high or low numbers are viewed by many assigns of overbought or oversold markets that may be ripe for price corrections.
The CFTC’s disaggregated report showedthat money managers slashed their net-long position in gold futures to 39,317contracts from 99,661 the week before. This occurred due to both longliquidation (total longs fell by 24,194) and fresh selling (total shorts roseby 36,150).
“Gold specs reduced positioning,liquidating longs and adding new shorts as a resurgent U.S. dollar drove theprecious-complex lower,” said TD Securities. “Indeed, the dollar rallied asweak data across Europe saw the ECB [European Central Bank] refrain fromgetting hawkish, while the BOE is unlikely to hike rates next week, sending theyellow metal to $1,300/ oz support.”
However, TDS said, precious metalsshould recover some since the Federal Open Market Committee once again signaleda willingness to let inflation overshoot, suggesting that officials are not ina hurry to restrict monetary policy.
“Further, disappointing U.S. employmentcould further convince more specs to re-enter,” TDS said.
Bill Baruch, president of Blue LineFutures, commented that gold has lost nearly 5% since its April 11 high, andthe net-long position of speculators is only 18% from its recent peak inFebruary.
“Furthermore, the metal has battled tohold the psychological $1,300 mark as gold bulls liquidated to bring thenet-long position to the lowest level since last July,” Baruch said. “Now thatlongs have jumped ship and the Federal Reserve is willing to allow inflation torun hot, gold is maybe the most attractive it’s been above $1,300 since 2011.Watch for gold to make a run to $1,330 this week; a close above here places thebulls squarely back into the driver’s seat.”
In the case of silver, speculatorsreturned to a net-short position of 23,886 contracts after they had stood at anet-long 4,200 the week before. This occurred as money managers increased theirtotal bearish positions by 24,933 lots while cutting gross longs by 3,153.
By Allen SykoraFor Kitco News
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