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Large Speculators Ramp Up Net Bullish Positioning In Gold, Silver – CFTC Data

By Allen Sykora Kitco News
Monday June 30, 2014 11:08 AM

(Kitco News) - Large speculators significantly ramped up their bullish positioning in both gold and silver futures, as reflected by the most recent weekly positioning data from the Commodity Futures Trading Commission.

They also added to their bullish stances in platinum group metals despite the end of a five-month-old strike in the South African mining sector.

All of the metals rose during time period covered by the report, which was for the week through June 24. August gold on the Comex division of the New York Mercantile Exchange rose $49.30 during the week to $1,321.30 an ounce, while September silver  soared $1.321 to $21.097. Nymex October platinum rose $29.20 to $1,473.10, while September palladium gained $13.70 to $830.40. Comex September copper moved up 8.7 cents to $3.1450 a pound.

Net long and short positioning in the CFTC data reflect the difference between the total number of bullish (long) and bearish (short) 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 CFTC issues two reports -- a “disaggregated” report started in 2007 and meant to offer more detail, and the older “legacy” reporting format still followed by many analysts.

In the disaggregated report, money managers hiked their net long in gold to 114,356 contracts for futures and options combined as of June 24, a jump of 72% from 66,572 the prior week. Barclays pointed out this was due to an almost equal amount of fresh buying and short covering. Total longs jumped by 22,912 lots, reflecting new buying. Meanwhile, total shorts fell by 24,871 lots, which represent short covering, which is buying to exit short positions in which traders had previously sold.

The net length is the most since March 25.

“The move has been buttressed by FOMC (Federal Open Market Committee) statements indicating that U.S. policy rates would remain near zero for a prolonged period, just as geopolitical tensions begun to escalate in Iraq,” said Citi Research.

TD Securities, in a research note, said gold speculative accounts shifted to a heavily net-long position in a delayed reaction to comments from Federal Reserve Chair Janet Yellen that disappointed those who thought she would lean more hawkish. This triggered short covering in gold, with buys stops activated and the market making a technical breakout higher.

The legacy report shows a similar story. The net long of the large non-commercial accounts – commonly referred to as the funds -- climbed to 146,239 for futures and options combined, the most since March 18 and a week-on-week gain of 54% from 94,654. A breakdown of the data shows that new longs rose by 29,511 lots, while total shorts fell by 22,074.

Edward Meir, commodities consultant with INTL FCStone, pointed out one potential drawback to the huge jump in net length, however. If gold can’t continue building on the roughly $40 jump from two weeks ago, fresh longs “may decide to head for the exits just as quickly as they came in,” meaning selling pressure would emerge in the form of long liquidation or profit-taking.

However, HSBC analysts also pointed out gross short positioning still remains at historically high levels, meaning potential for even more short covering.

Percentage-wise, the jump in net length in silver was even more dramatic. In the disaggregated report, money managers’ net-long position skyrocketed to 24,757 lots for futures and options combined, a week-on-week gain of 382% from 5,134. This tended to be tilted toward short covering, as the number of total shorts fell by 13,416 lots and the number of total longs rose by 6,207.

In the legacy report, the large non-commercials upped their net long by 148% to 30,803 lots from 12,403 the prior week. The largest share of the increase was the result of short covering as gross shorts declined by 11,804 lots, although there was also significant fresh buying as reflected by a 6,596-lot increase in gross longs.

Net length in silver for money managers stands at the highest level since Feb. 25. For the non-commercials, the net long slightly exceeded the February peak of 30,164 and thus was the greatest net long since February 2013.

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Large speculative accounts also added to net-long positions in the platinum group metals, even though a strike in South Africa was declared officially over the day before the deadline for the most recent CFTC data.

“PGMs moved net longer on the worry that a dovish Fed would be behind the inflation curve, but positive labor developments in South Africa held them in check,” TDS said.

Money managers hiked their platinum net long to 35,944 lots in futures and options combined from 33,622 the prior week. There was both fresh buying (total longs rose 1,336) and short covering (total shorts fell by 986).

In the legacy report, the non-commercials hiked their net long to 44,924 lots from 41,620 the previous week. The data also suggested both short covering (decline of 2,446 shorts) and fresh buying (total longs rose 858).

In the case of palladium, the money managers’ net long rose to 19,941 lots from18,550 the week before, mainly as a result of fresh buying, as gross longs climbed by 1,007 lots. The non-commercials upped their net long to 22,201 from 20,976. This also was mainly due to fresh buying as total longs increased by 1,071.

The net positioning for the lone base metal included in the CFTC report – copper – was mixed, although in both cases the buying outpaced the selling in the most recent data. For the disaggregated report, money managers flipped to a net long of 14,325 lots from a net short of 313 the prior week. In the legacy report, the non-commercials were net short but by a smaller margin of 7,578 lots, compared to 17,930 the previous week. In each case, there was both short covering and fresh buying in the week to June 24.

“With this week’s release of China’s official June PMI (Purchasing Managers Index) data, which we expect will also show an acceleration in manufacturing activity for the Asian Dragon, we expect further short covering activity to be a feature of CFTC report for the week ending July 1st,” said Citi Research.

By Allen Sykora of Kitco News; asykora@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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