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Hedge Funds Jump Into Gold Amidst Growing U.S. Political Uncertainty

(Kitco News) - The latest trade data from the Commodity Futures Trading Commission show that hedge funds continue to trickle into gold, looking for safe-haven assets as turmoil continues to circle around the new Donald Trump Administration, according to analysts.

The disaggregated Commitments of Traders report, for the week ending Jan. 31, showed money managers increased their speculative gross long positions in Comex gold futures by 5,504 contracts to 140,663. At the same time, short bets fell by 4,579 contracts to 70,826. Gold’s net length now stands at 69,837 contracts.

Gold’s net length jumped more than 16% from the previous week, its biggest jump seen so far this year. The increased investor interest didn’t have much impact on prices; during the survey period, gold was flat as prices traded around $1,200 an ounce.

“The delaying of the Obamacare repeal raised questions about President Trump's ability to get fiscal stimulus through Congress, and suggested the potential for the Fed to be more cautious about raising rates,” said Bart Melek, head of commodity strategy at TD Securities. “This along with Trump advisor Peter Navarro suggesting that Germany is using a weak euro to exploit the U.S. sent yields and the USD downward, which provides a positive environment for the yellow metal—rallying as high as $1225/oz in recent days.”

While money managers have expanded their net bullish positioning for the fourth straight week, the pace of investments has been slower compared to last year.

In an interview with Kitco News prior to the release of the latest trade data, Ole Hansen, head of commodity strategy at Saxo Bank, said that money managers have been largely absent from the rally, which has seen prices rise more than 6% since the start of the year.

However, he added that as prices push further above $1,200 an ounce, he would expect funds to jump in quickly, extending the current rally.

Analysts at Citigroup agreed that positioning remains light, despite the growth in bullish positioning, which could support their bearish outlook.

“Overall, gold length is below historical averages,” they said. “We are aware that price risks in both directions seem plausible at this juncture. But if pressed, we maintain a bearish bias.”

While investors are still lukewarm on gold, they remain extremely interest in silver. The grey metal continues to outperform gold.

The disaggregated report showed money-managed speculative gross long positions in Comex silver futures rose by 5,081 contracts to 76,808. At the same time, short positions fell by 2,781 contracts to 12,844. Silver’s net length now stands at 63,964 contracts.

Silver’s net length has increased for five consecutive weeks, up 14% from the previous week. During the survey period, silver rose more than 2.5% as prices pushed to their highest level since early-November.

However, analysts at Citigroup said that the grey metal could be running out of steam.

“While the CFTC silver net fund position is by no means stretched relative to the record high of 97k lots in July 2016, we are skeptical that they recover to similar levels, absent an outsized sell-off in asset markets and significantly further depreciation in the USD,” they said. “More recently, silver prices seem to struggle above $17.5/oz. Hence, managed money net length in silver could decrease in next week’s report.”

 

By Neils Christensen of Kitco News; nchristensen@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 precious metal products, 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.
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