Funds Hold Record Net Short In Gold; Short Covering Coming?
(Kitco News)- Fund managers increased their netbearish positioning in gold and silver futures as the amount of fresh sellingoverwhelmed fresh buying, according to the most recent weekly data from theCommodity Futures Trading Commission.
In fact, these accounts now holda record bearish position in gold futures, numerous analysts pointed out.
“Speculative financial investorsare thus continuing to contribute significantly to the fall in precious-metalsprices,” said Commerzbank.
Conversely, however, severalanalysts commented this means there is a potential for a short-covering rally.This is when traders with bearish positions offset them by buying, either tocapture profits or avoid/limit a loss.
The most recent CFTC reportcovers the week-long period to July 24. During this time frame, Comex December fell $3.20 to $1,234.60 an ounce. Further, during this reporting week, thecontract bottomed at $1,221, its weakest level in more than a year. Meanwhile,September silver lost 9.7 cents to $15.52 an ounce during the week to July 24.
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 ripe for pricecorrections.
“The CFTC reported on Friday thatshort positions in gold hit a record high, while silver shorts rose to a10-week peak,” said Edward Meir, commodities consultant with INTL FCStone.
The CFTC’s “disaggregated” reportshowed that managed-money accounts upped their net-short position in goldfutures to 36,422 contracts from 26,449 the week before.
“The gross-long rose for thefirst time in six weeks but was more than offset by a continued extension ofthe gross short...,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Total shorts rose by 12,447 lotsand outpaced the fresh buying, with the latter reflected by an increase of2,474 gross longs.
The net-bearish positioning“brings a high risk of short covering, which could bring upside to prices,”said Jonathan Butler, precious-metals strategist with Mitsubishi.
A TD Securities research notepointed out that continued weakness in the currency of China, the world’sbiggest gold-consuming nation, has contributed to further weakness in gold. Astrong U.S. dollar generally has also hurt gold for weeks now.
“But, with [U.S. PresidentDonald] Trump criticizing increased rates and a strong dollar, the buck'supside could be running out of steam, while the outcome of the meeting with[European Commission President Jean-Claude] Juncker ended with a more encouragingsentiment surrounding trade and potential auto tariffs,” TDS said. “Indeed,should the dollar's rally cool off in the second half of the year as weanticipate, the precious-metals complex could receive a hefty boost as therecord short positions get squeezed out. For now, continued weakness in the CNH[China’s currency] should also prevent any near-term rallies.”
Meanwhile, in silver futures, thenet-short position of money managers rose to 12,634 contracts from 8,810 theweek before. This occurred as the number of total shorts rose by 5,927 lots,exceeding the increase of 2,103 gross longs.
Nevertheless, the silver netshort remains below the record level hit earlier this year, Hansen pointed out.“Despite [silver] having the worst run of weekly losses since 2000, silversellers remain reluctant,” the analyst added.
Butler commented that the numberof speculators on the bullish side of the silver market actually remains “quitehealthy,” based on historical data. However, this has been more than offset latelyby a large number of bearish positions that he said were at an all-time high.
“As with all the other preciousmetals, such extremes on the short side bring an elevated risk of shortcovering, which would be supportive of silver prices,” Butler said.
By Allen SykoraFor Kitco News
Follow @AllenSykora
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