Make Kitco Your Homepage

Hedge Funds Dump Gold, Silver Ahead Of Fed - Analysts

Kitco News

(Kitco News) - Hedge funds have shed their bullish gold bets and are turning more bearish as they prepare for stronger U.S. economic growth and tighter monetary policy in the new year, according to market analysts.

The latest trade data from the Commodity Futures Trading Commission shows the biggest drop in bullish exposure in 17 months. At the same time, silver saw its biggest decline on record.

The disaggregated Commitments of Traders report for the week ending Dec. 5 showed money managers reduced their speculative gross long positions in Comex gold futures by 41,344 contracts to 167,174. At the same time, short bets increased by 22,686 contracts to 32,664. Gold’s net length dropped to 134,510 contracts.

Gold’s net length declined by more than 32% from the previous week as the prices declined more than 2.5%. Along with growing bearish fundamentals, analysts also note that the market saw some technical selling pressure as price broke a two-month trading range. November was the narrowest trading range in more than a decade.

“A stronger dollar driven by rising rates expectations and progress on the tax deal saw gold take the biggest hit in seven months,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Analysts at Commerzbank said that given the continued slide in gold prices, they are expecting to see hedge funds continue to liquid their long positions.

However, Bart Melek, head of commodity strategy at TD Securities, said that sees a floor in the market as TDS does not expect the U.S. central bank to sound very hawkish when it releases its monetary policy decision Wednesday.

“We still favor gold in 2018, as persistent weak wage inflation should prevent the Fed from getting overly hawkish, thus keeping real rates low and the curve flat. Large deficits from the proposed fiscal stimulus should also bode well for precious metals,” Melek said.

While hedge funds were fleeing the gold market, they were also dumping silver contracts last week as well. The disaggregated report showed money-managed speculative gross long positions in Comex silver futures fell by 12,339 contracts to 57,446. At the same time, short positions rose by 22,576 contracts to 35,814. Silver’s net length now stands at 21,632 contracts.

In the biggest such move ever seen in the silver market, the metals’ net length declined almost 62% from the previous week. During the survey period, silver prices declined 5%.

“The silver price has suffered disproportionate losses since mid-November, as is also reflected in the gold/silver ratio, which climbed last week to over 79,” analysts at Commerzbank said.

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 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.

Precious Metal Charts

Follow Kitco News

Kitco Offers