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Higher Prices Encourage Large Speculators To Boost Gold Holdings – CFTC

By Debbie Carlson of Kitco News
Monday November 24, 2014 11:40 AM

(Kitco News) - Higher gold prices encouraged large speculators to add to their bullish Comex gold futures and options holdings, reversing some of their recent reductions in net-long positioning, as seen in the latest Commodity Futures Trading Commission weekly data.

These traders also felt more positive toward silver. There they turned net-long in the disaggregated report and built on their bullish position in the legacy data, for the week ending Nov. 18. They cut back on net-longs in the platinum group metals and cut their net-short position in copper in both reports.

Metals prices were mostly firmer during the time period covered by the latest CFTC report. Comex December gold gained $34.10 to $1,197.10 an ounce. December silver rose 49.60 cents to $16.174. January  platinum rose $12.30 to $1,219 an ounce. December palladium gained $4 to $776.70. Only Comex December copper fell, dropping 3.10 cents to $3.002 a pound.

Managed-money traders returned as gold buyers, following three weeks of cutting bullish positions. They are now net-long 60,307 contracts, as they added 8,890 gross longs and cut 12,744 gross shorts, meaning they added bullish positions and cut bearish ones. Producers bolstered their net-short position when they added more gross shorts than gross longs. Swap dealers also increased their net-short position, having cut gross longs and added gross shorts.

Similar to the disaggregated report, the non-commercial traders in the gold legacy report also added gross longs and cut gross shorts to lift their net-long position. They added 12,044 gross long contracts and sliced 18,077 gross shorts. They are now net-long 84,877 contracts. Commercials are net-short and raised that position by adding many more gross shorts than gross longs.

“After weeks of cutting net-long gold positions, (speculators) aggressively grew long exposure and covered shorts after a Fed (Federal Reserve) official suggested the central bank may stay in zero-bound policy mode for longer than expected, and amid SNB (Swiss National Bank) reserve optimism,” said Bart Melek, head of commodity strategy at TD Securities.

Melek was referring to the coming Nov. 30 vote regarding the Swiss gold initiative, which would require the SNB to hold 20% of its reserves in gold, among other measures.

Barclays analysts said the rise in net-long positioning is the biggest weekly jump since August. “Gross short positions are now at September levels but still present the scope for further short-covering activity,” they said.

UBS analysts said at current levels, speculators’ gold net-long position is only about 23% of the all-time high and this was the first time in three weeks that speculators added gross gold long positions.

Some of the rise in the funds’ net-long position came via short covering, UBS said.

“The bulk of the short-covering likely occurred on Nov. 14 when gold prices climbed about $40 – the sharp move higher would have hit plenty of stops along the way,” they said.

For the first time since Sept. 9, managed-money traders in silver turned net-long the metal. They are now net-long 745 contracts, having added 175 gross longs and cut 2,553 gross shorts. Producers decreased their net-short position by adding more gross longs than gross shorts.  Swap dealers decreased their net-long position by cutting gross longs and adding gross shorts.

In the legacy report, funds increased their newly established net-long silver position, lifting it to 6,047 contracts. They have now been net-long for three weeks in a row. While the net-long position rose, it came from non-commercials cutting 577 gross longs and 2,259 gross shorts, which meant they ultimately reduced exposure to silver. Commercials are net-short and increased that position by adding more gross shorts than gross longs.

Silver’s gross short position is off of all-time highs reached at the start of the month, UBS said, and “silver short positioning is still quite elevated, suggesting there is further room to cover. But longs don’t seem to be very committed. Underlying weak sentiment towards silver has been evident in the gold:silver ratio, which reached a five-year high of 75.52 two weeks ago. The ratio is now off the highs but continues to hover quite close to it.”

Analysts at Commerzbank offer a word of caution to gold and silver bulls looking at the CFTC report.

“Speculation was … the primary reason for the price rise here, meaning that the latest increases in the prices of gold and silver could find themselves on a shaky footing. Robust or reviving physical demand would be needed for them to prove lasting, though as yet there is no reliable data to indicate such demand,” they said.

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Managed-money accounts in platinum decreased their net-long position to 12,665 contracts. Not only did they erase the two weeks of builds, but they dropped their net-long position so it is now the smallest since Dec. 24. They cut 114 gross longs and added 2,547 gross shorts. Non-commercials in platinum also trimmed their net-long position, dropping it to 21,023 contracts in the legacy report. They added 432 gross longs and added 2003 gross shorts.

Melek said speculators likely added gross short positions as Europe’s economy remains weak and the European Central Bank refrains from aggressive quantitative easing.

Large speculators’ net-long palladium holdings fell in the disaggregated report to 18,066 contracts. They cut 208 gross longs and added 205 gross shorts. The palladium legacy report saw non-commercials cut 1,409 gross longs and add 176 gross shorts, which lowered their net-long to 20,628 contracts.

For the second week, managed-money accounts lowered their copper net-short position. Their net-short position fell to 1,304 contracts, as they added 2,518 gross longs and 2,158 gross shorts. Large speculators in copper’s legacy report slightly decreased their net-short position to 24,781 contracts. These traders added 4,745 gross longs and 3,831 gross shorts.

For further information, see the CFTC’s website.

By Debbie Carlson dcarlson@kitco.com
Follow me on Twitter @dcarlsonkitco

 

 

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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