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FOCUS: Speculators Pick Up Gold, Shed Other Precious Metals In CFTC Data

By Debbie Carlson of Kitco News
Monday March 25, 2013 11:24 AM

(Kitco News) - A rise in gold prices amid worries about Cyprus teetering on the edge of bankruptcy renewed speculators’ love for gold in times of trouble, coming at the expense of other precious and base metals futures and options markets traded on the Comex division of the New York Mercantile Exchange.

According to data in the weekly Commitment of Traders report released late Friday by the Commodity Futures Trading Commission, speculators snapped up bullish positions in gold in both the disaggregated and legacy reports. The speculators’ net-long positions are now at their highest level since Feb. 12 in both reports. Reductions in net-long positions were seen in silver and the platinum group metals, while speculators massively increased their net-short position in copper.

Except for gold, prices for the metals were mostly lower during the week to March 19, which is the timeframe covered by the report. April Comex gold rose $19.60 to $1,611.30 an ounce as of March 1. May silver fell 32.80 cents to $28.843. Nymex April platinum slid $39.60 to $1,555.40, while June palladium dropped $40.30 to $735.20. Comex May copper fell 14.9 cents to $3.4055 a pound.

Managed-money accounts significantly increased their net-long position in gold, raising it to 70,193 contracts, a 62% increase over the week before. This big swing came as managed-money accounts added 13,263 gross longs and sliced 13,735 gross shorts, which meant speculators added new bullish positions and covered short positions. Producers added to their net-short position by adding more gross shorts than gross longs. Swap dealers also bolstered their net-short positions by cutting a hefty number of gross longs and adding gross shorts.

Non-commercials in the legacy report mirrored the action in the disaggregated report, although the size of the net-long increase was less intense. They added 9,794 gross longs and cut 15,908 gross shorts, another sizeable adding of new bullish positions and paring back bearish positions. They are now net-long 127,996 contracts, which was a 25% increase over the previous week. Commercials are net-short and significantly boosted that position by adding to gross shorts and slicing gross longs.

Safe-haven demand sent investors into gold, several market watchers said, as the timeframe covered the initial news about Cyprus.

Standard Bank said the jump in net speculative longs was “the strongest vote of confidence we’ve seen since August last year…. However, momentum is lacking. Clearly, the market is unable to completely shake off worries over the timing of an end to Fed quantitative easing.”

The silver net-long position for the managed-money accounts in the disaggregated report decreased to 2,774 contracts, the smallest net-long position since the report started in September 2009. The reduction in the net-long position came from speculators adding 2,946 gross shorts, which more than offset the new 680 gross longs. Producers cut back on their net-short position by adding gross longs and cutting gross shorts. Swap dealers raised their net-long position by adding gross longs and cutting a few shorts.

In the legacy report, the silver net-long position for non-commercial traders was also reduced. Funds chopped 229 gross longs and added 3,302 gross shorts. They are now net long 13,025 contracts, the smallest since July 24. Commercials reduced their net-short position by adding many more gross long positions than gross shorts.

TD Securities said the action in silver shows that industrial demand became a concern for speculators and explains why they added short positions.

Despite the very small net-long position for speculators, silver prices are holding up, said Commerzbank. “The silver price appeared relatively unbothered by (the drop in speculative net longs). In our opinion, (silver) is finding support from high ETF inflows – holdings of silver ETFs tracked by Bloomberg are now close to a record high,” they said.

Activity in the disaggregated report for the platinum group metals showed speculators trimming back exposure to the white metals. For platinum, managed-money traders decreased their net-long position to 24,578 contracts by cutting 1,712 gross longs and adding 1,903 gross shorts. Managed-money traders reduced their net-long palladium position in the disaggregated report to 23,973 contracts. The fall came from a small decrease in fresh gross longs, down 476 contracts, and an increase in gross shorts, up 180 contracts.

In the legacy report, non-commercial traders also scaled back their platinum and palladium positions. In platinum, non-commercials cut 1,675 gross longs and added 2,400 gross shorts, lowering the net-long position to 35,445 contracts. For palladium, non-commercials reduced their net-long to 26,587 contracts and arrived at that level by cutting 915 gross longs and adding 148 gross shorts.

TDS said with worries about global demand uncertainty and poor European auto sales growth, speculators found reasons to close out longs and add short positions.

Joni Teves, analyst at UBS, said the combination of long liquidation and fresh shorts in platinum marked the fifth straight week of a drop in speculators’ position. When viewed by ounces, rather than contracts, she said “this is the first time platinum net longs have fallen below the 2,000koz level since September last year, and the net position now sits at 69% of the record.”

Palladium also saw some speculative selling, but even so, “positioning in palladium remains extended at 98% of the all-time high,” she said.

Several market watchers have said palladium is vulnerable to selling because of the heavy net-long position.

Managed-money accounts in copper sharply increased their net-short position by cutting 2,476 gross longs and adding 6,479 gross shorts, hiking their net-short position to 25,719, a 53% increase from the previous week’s net short position. This is the biggest net-short position for speculators in the disaggregated report since it started in September 2009 for the red metal.

In the legacy report, the non-commercials’ rise was even more pronounced as funds cut 369 gross longs and added 9,822 gross shorts, raising their net-short position to 16,310, a 166% rise versus the previous week’s level. This puts the speculative short position at the highest since mid-August.

“The red metal continues to see inventories hitting new highs, slower China growth, and European concerns,” TDS said.

Commerzbank analysts said the high net-short position may not last. They said given that copper prices fell sharply during the report’s timeframe, it’s likely that new positions were added. However, they said “because the price has since risen noticeably, some of the short positions are likely to have been closed again in the meantime. In our opinion, the high net-short positions offer a springboard for a considerable surge in the price of copper over the next few months.”

For further information, see the CFTC’s website: http://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm

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By Debbie Carlson of Kitco News dcarlson@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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