Bearish Gold Positioning Expands; Is It Time For A Bounce?
(Kitco News) - Money managers have moved to alarge net bearish position in gold futures, but some analysts are suggestingthis may be a sign of an overextended market that could be ripe for some kindof bounce.
Selling by these accounts pushedgold sharply lower during the week-long period to July 17 covered by the mostrecent positioning data compiled by the Commodity Futures Trading Commission.Comex August gold fell by $28.10 an ounce to $1,227.30, while September silvershed 47 cents to $15.617.
Net long or short positioning inthe CFTC data reflect the difference between the total number of bullish (long)and bearish (short) contracts. Traders monitor the data to gauge the generalmood of speculators, although excessively high or low numbers are viewed bymany as signs of overbought or oversold markets that may be poised for pricecorrections.
TD Securities issued a researchnote saying that speculators “have continued to shun gold” due to a resilientU.S. dollar and emerging-market foreign-exchange “angst” as the People’s Bankof China continues to allow the country’s currency to depreciate to offseteconomic headwinds in China.
The CFTC’s “disaggregated” reportshows that money managers stood net short by 26,449 contracts as of July 17,compared to a net short of 2,527 at the end of the prior reporting week. Thisbig change was the result of fresh selling, as the number of shorts soared by24,295 lots. There was also some fresh buying, as reflected by a 373 increasein gross longs.
“Just as I suspected; it wasshort traders driving gold down,” said a tweet from Fred Hickey, editor-creatorof The High-Tech Strategist.
Whoa Nelly! Just as I suspected it was short traders driving gold down.Thru Tuesday(likely even worse now), a slight increase in longs& another massive 27.7K jump in large spec. futures shorts. In past 5 weeks +121% jump in short contracts to 161K -highest level in at least 11yrs
— fred hickey (@htsfhickey) July 20, 2018Commerzbank analysts pointed outthat gold hit the lowest price in a year in a slide exacerbated by speculativetraders. The net-short position is near the late 2015 record high, the bankadded, while also suggesting the market may have reached an extreme that couldlead to a bounce.
“Speculative market participants oftenbehave in a very cyclical fashion, and in the past such extreme positioning hasfrequently been an indicator of a pronounced countermovement in the nearfuture,” Commerzbank said. “Very negative market positioning at the end of 2015was followed by a surge in the gold price of roughly $300 in the first half of2016.”
Alasdair Macleod, head ofresearch at Goldmoney, echoed similar sentiments in this tweet: “Gold asoversold as it has ever been. Last time this happened was 29 Dec 2015 and wasfollowed by $315 [rise] to $1366 over 7 months.”
Hedge funds short 26,449 Comex gold contracts last Tuesday. Near record. Gold as oversold as it has ever been. Last time this happened was 29 Dec 2015 and was followed by $315 to $1366 over 7 months.
— Alasdair Macleod (@MacleodFinance) July 20, 2018Commerzbank noted thatspeculative financial investors are also pessimistic about the other preciousmetals and flipped back to a net-short in silver.
Money managers now hold anet-short position of 8,810 futures contracts, compared to a net-long standingof 7,827 in the prior week. This reversal was due to a combination of freshselling (gross shorts rose by 10,247 lots) and long liquidation (total longsfell by 6,390).
By Allen SykoraFor Kitco News
Follow @AllenSykora
asykora@kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.