Money Managers Reverse To Net-Short Position In Gold In Countdown To FOMC – CFTC Data
Monday November 23, 2015 10:29
(Kitco News) - Large speculators flipped to a net-bearish position in gold futures for only the second time ever in one Commodity Futures Trading Commission report, while further slashing their net long in another, according to the most recent data compiled by the government agency.
Most of the change was driven by fresh selling, rather than traders exiting bullish positions, as had been the case for much of the previous few weeks. However, this in turn creates potential for short covering in metals as bearish traders either book profits or exit to avoid losses if the market reverses against them, analysts said.
The move came as traders factored in expectations that the Federal Open Market Committee will hike U.S. interest rates next month. This has boosted the U.S. dollar.
“An adjustment in positioning was warranted, as market participants anticipate a December
Fed rate hike,” UBS said. “But the speed and magnitude of the washout – and particularly the
increase in gross shorts – raises possible short-covering risks up ahead.”
Further, with traders having already given up the large net-long position from just a few weeks ago, this “reduces the risk of a pronounced downside response should the Fed start tightening in December than
would have been otherwise,” UBS added. “At the same time, lighter positioning creates better conditions for a post-rate hike recovery, particularly if the Fed signals a slower pace after lift-off.”
The most recent CFTC data is for the week-long period through Nov. 17. During this time frame, Comex December gold fell $19.40, or 1.8%, to $1,069.30 an ounce. December silver lost 24 cents, or 1.7%, to $14.14.
Net long or short positioning in the CFTC data reflect the difference between the total number of bullish and bearish 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 commission issues two reports each Friday -- a so-called “legacy” report and a “disaggregated” report, started in 2009 and meant to offer more detail.
The most recent report showed that as of Nov. 17, money managers in the disaggregated report reversed to a net-short position of 13,923 futures contracts compared to a net-long of 16,869 the week before. The reversal occurred mostly due to fresh selling, as the number of total shorts rose by 29,422. There was also a small amount of long liquidation, with total longs declining by 1,370.
“Four weeks previously, net-long positioning here had been at its highest level since February,” Commerzbank said.
TD Securities pointed out these accounts are now net short for just the second time in the history of the disaggregated report. “Sentiment in precious is very bearish ahead of the much-anticipated Fed rate hike,” TDS said.
Before the most recent shift to factor in rate-hike expectations, managed-money accounts had been net long by 116,344 contracts back on Oct. 20.
Meanwhile, for non-commercial accounts in the legacy report, the net-long position in gold fell to 34,399 futures contracts from 68,389 in the prior report. Total shorts jumped by 32,824, while total longs slipped by 1,166.
In silver, money managers in the disaggregated report cut their net-long position to 12,205 futures contracts from 26,027 the previous week. The number of gross shorts rose by 12,193 (fresh selling), while gross longs fell by 1,629 (long liquidation).
Non-commercial net length in silver fell to 25,254 lots from 38,990 lots. Gross shorts rose by 13,714, while the number of total longs inched down by 22 contracts.
By Allen Sykora of Kitco News; firstname.lastname@example.org