Hedge Funds Kick Off 2018 Piling Into Gold and Silver
(Kitco News)- Hedgefunds continued to pile into silver and gold in the first few days of the newtrading year, according to the latest trade data from the Commodity FuturesTrading Commission.
Analystsnoted that the precious metals market looks attractive to fund managers as theU.S. dollar continued its sharp decline into 2018. Ole Hansen, head ofcommodity strategy at Saxo Bank, said that the U.S. dollar has lost ground asconcerns continue to build over weak inflation pressures.
Thedisaggregated Commitments of Traders report for the week ending Jan. 2 showedmoney managers increased their speculative gross long positions in Comex goldfutures by 40,708 contracts to 168,423. At the same time, short bets rose byonly 292 contracts to 20,249. Gold’s net length increase to 148,174 contracts.
Duringthe survey period, gold prices rose more than 2% as they broke through keyresistance at $1,300 an ounce.
“Marketparticipants are increasingly unconvinced that Trump's tax reform will beinflationary, implying that still-muted inflation will not entice the Fed toraise rates in accordance with their dot-plots, thereby keeping the cost ofholding non-yielding precious metals low,” said Bart Melek, head of commoditystrategy at TD Securities.
Whilethe gold market has generated strong upward momentum since the start of theyear, analysts are warning that the market could be a little overextended anddue for some consolidation.
Analystsat Commerzbank said that in the last three weeks three weeks, hedge funds havenearly doubled their net-long position.
“Thatsaid, this also means that correction potential has built up again. If marketparticipants maintain their high-risk appetite and if for example, stock marketscontinue to soar, we could see profit-taking,” they said.
Currencyanalysts at Brown Brothers Harriman said that they see the U.S. dollar asoversold and could attract some bargain hunting, which would weigh on gold.
“Regardlessof one's medium- or longer-term views, the technical indicators warn that thesell-off is stretched and in need of consolidation, if not a correction,” saidMarc Chandler, global head of currency strategy at the investment firm.
Whilegold has seen an impressive rally, it was unmatched to the sentiment change insilver. At the end of 2017, the silver market was net short as hedge fundsincreased their bearish outlook on the precious metal.
However,Hansen noted that the bearish sentiment was short-lived.
“For thesecond time within the last six months, funds only managed to hold onto asilver net-short for a couple of weeks. Last week’s buying of 23,000 lots wasthe biggest since May 2015,” he said.
Thedisaggregated report showed money-managed speculative gross long positions inComex silver futures rose by 5,821 contracts to 54,304. At the same time, shortpositions fell by 17,169 contracts to 38,501. Silver’s net length now stands at15,803 contracts.
During the survey period, silver pricesincreased 3.6% as the market pushed above key resistance at $17 an ounce.
By Neils ChristensenFor Kitco News
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