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Hedge Funds Ditch Gold Ahead Of Fed Decision, More Selling To Come - Analysts

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(Kitco News) - After three weeks of growing bullish interest, culminating in a seven-month high, hedge funds were quick to take profits last week and liquidate those positions on the eve of the Federal Reserve interest rate hike, according to the latest trade data from the Commodity Futures Trading Commission.

The Disaggregated Commitments of Traders report for the week ending June 13 showed money managers cut their speculative gross long positions in Comex gold futures by 14,521 contracts to 214,955. At the same time, short bets increased by 4,032 contracts to 67,459. Gold’s net length now stands at 147,496 contracts.

Bullish net-positioning dropped more than 11% from the previous week. Hedge fund liquidation coincided with a more than 2% drop in gold prices during the survey period. While the latest data don’t include the Federal Reserve interest rate decision, analysts said they expect to see further liquidation in the gold market, as prices have dropped to a four-week low following last week’s U.S. central bank monetary policy meeting.

“After loading up on long gold exposure in response to weaker-than-expected US data, specs aggressively cut their length as time to the next FOMC came nearer,” said Bart Melek, head of commodity strategy at TD Securities. “The US Federal Reserve has communicated an unambiguous hawkish tilt in its communique, forecasts and press conference. With positioning reflecting a more dovish monetary policy than Janet Yellen is signaling, it is likely that gold will continue to be under selling pressure with length dropping over the near term.”

Similar to gold, after three weeks of renewed buying interest, hedge funds took a more bearish view on the silver.  The disaggregated report showed money-managed speculative gross long positions in Comex silver futures fell by 1,086 contracts to 77,308. At the same time, short positions increased by 5,210 contracts to 33,378. Silver’s net length now stands at 43,930 contracts.

Silver’s bullish net-length dropped more than 12.5% from the previous week. Silver's net-length is now down more than 50% from its record highs seen in early-April. During the survey period, silver prices fell more than 5% as prices pushed below a key level of $17 an ounce.

Also similar to gold, silver has seen further selling pressure following the Federal Reserve meeting with prices pushing to a four-week low.

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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