Money Managers Trim Bullish Gold Position, Likely Rebuilding Again
(Kitco News) - Large speculators exited from bullish gold positions in the run-up to last week's Federal Reserve meeting, weekly positioning data from the Commodity Futures Trading Commission show, but analysts say these traders are likely already returning to gold again.
The most recent CFTC report is for the week through March 14, the day before the Federal Open Market Committee hiked U.S. interest rates by 25 basis points. Gold fell prior to this as markets factored in a rate hike, but has since risen again since accompanying Fed commentary was construed as not being hawkish.
During the week-long period covered by the report, Comex April gold fell $17.40 to $1,198.50 an ounce, while May silver lost 63.5 cents to $16.88. Since, gold has risen to $1,231.90 as of 9:04 a.m. EDT Monday, while silver was up to $17.43 an ounce.
Phil Flynn, senior market analyst with at Price Futures Group, commented that a one-week 49% decline in gold net length could be a sign that the market has formed a bottom. Gold had lost roughly $70 in the two-week run-up to the Fed meeting as traders in a wide range of markets factored in a rate hike after a series of Federal Reserve speakers were upbeat about the economy.
"We've seen recently that when the trade gets long with too many speculators, it's usually a sign that the market is ready to turn," Flynn said, referring to the price weakness prior to March 14. And now, the CFTC data mean the market may well have turned again, this time to the upside, he continued.
"A few weeks ago, we had a very strong (net-long) position," Flynn said. "After that run, people took profits, which means it is not as crowded of a trade and will give some opportunities for people to buy back in and build that position back up again."
Net long or short positioning in the CFTC data reflect the difference between the total number of bullish and bearish contracts. Traders monitor the data to gauge the general mood of speculators, although excessively high or low numbers are viewed by many as signs of overbought or oversold markets that may be ripe for price corrections. The commission issues two reports each Friday -- a so-called "legacy" report and a "disaggregated" report, started in 2009 and meant to offer more detail.
The data show that in the week to March 14, money managers included in the disaggregated report slashed their net-long position to 46,374 futures contracts from 90,247 as of March 7. This left the net-long position at the lowest level since early January, Commerzbank reported.
"This was clearly in anticipation of future Fed rate hikes being stepped up," Commerzbank said. "Now that Yellen has quashed these expectations, speculative financial investors are returning."
The decline in the overall bullish posture of money managers was due to a combination of long liquidation (decline of 29,098 gross longs to 121,179) and fresh selling (as reflected by a rise of 14,775 gross shorts, or bearish positions, to 74,805).
In the case of silver, money managers cut their net-long position to 67,516 lots from 83,401 the week before. The bulk of this was long liquidation, as gross longs fell by 13,905 lots to 80,582. There was also some fresh selling, as total shorts rose by 1,980 to 13,066.