Buckle Up! Momentum Shift Coming To Gold And Silver - Analysts
(Kitco News)- Momentum continuesto shift in the gold market as hedge funds kept their exposure to gold andsilver materially unchanged last week, according to the latest trade data fromthe Commodities Futures Trading Commission.”
Many analysts havewarned that the gold’s overstretched market is on the cusp of a much-neededconsolidation period, and speculative interest in the yellow metal is expectedto continue to shift. Some analysts have said that a sharp rise in 10-year bondyields could start to weigh on gold as it raises the precious metal’sopportunity costs.
“There is likely tohave been profit-taking given that the CFTC’s statistics show that speculativefinancial investors had previously maintained their net-long positions at ahigh level,” said analysts at Commerzbank.” We believe that this gave and stillgives rise to considerable correction potential for precious metals prices.”
The CommodityFutures Trading Commission’s disaggregated Commitments of Traders report forthe week ending Jan. 30 showed money managers reduced their speculative grosslong positions in Comex gold futures by 5,406 contracts to 230,597. At the sametime, short bets fell by 3,432 contracts to 23,035. Gold’s net length fell to209,536 contracts.
Gold’s net lengthdeclined slightly less than 1% from the previous week. During the survey periodgold prices were relatively unchanged holding around $1,340 an ounce.
“Gold specs reducedtheir exposure this week, adding new shorts and liquidating long positionsafter disappointing GDP data and aggressive USD weakness failed to provideenough juice to break the upper bound of the range,” said Bart Melek, head ofcommodity strategy at TD Securities. “Traders likely reduced exposure headinginto the FOMC meeting and January nonfarm payrolls, which surprised on theupside, in terms of the headline jobs number as well as wage inflation. Theyellow metal will likely continue its consolidation toward $1,320 an ounce inthe near term.”
Bill Baruch,president of Blue Line Futures, is also looking for the gold market to see areduction in bullish speculative interest. He added that while he is long-termbullish on gold, the market needs a consolidation period.
“I think the goldrally is overdone and I would not go chasing prices at these levels,” he said.“I would be looking to enter a long-term position again when prices fall toaround $1,320 an ounce.”
Hedge funds alsoreduced their overall exposure in silver. The disaggregated report showedmoney-managed speculative gross long positions in Comex silver futures fell by3,822 contracts to 50,036. At the same time, short positions fell by 6,519contracts to 23,718. Silver’s net length now stands at 23,597 contracts.26,427.
Renewedshort-covering helped push silver’s net length up almost 12% from the previousweek. Prices rose almost 1% during the survey period as the market struggled tohold the $17-an-ounce level.
Looking ahead,analysts are expecting to see a significant increase in bearish positioning inthe near term. Friday, which will be covered in next week’s trade data, showedthe gold/silver ratio hitting a two-year high above 80, meaning it now takes 80ounces of silver to equal one ounce of gold. The historical average for theratio is around 60 points.
The rise in theratio came as silver prices underperformed the yellow metal.
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.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.