For The Second Consecutive Week, Hedge Funds Hold Record Short Bets In Gold – CFTC
Monday December 07, 2015 13:44
(Kitco News) - Negative sentiment in the gold space continues to grow as hedge funds and money managers increase their short bets to record highs for the second consecutive week, according to the latest data from the Commodity Futures Trading Commission (CFTC).
For the week ending Dec. 1 the disaggregated Commitment of Traders Report (COTR) showed money-managed speculative gross long positions of Comex gold futures fell by 1,077 contracts to 89,982. At the same time, gross shorts rose by 2,825 contracts to 110,548. The latest data shows the gold market is net short by 20,566 contracts.
During the survey period, February gold futures saw consistent selling pressure as prices pushed to a multi-year low, falling 1% during a shortened holiday trading period.
Phil Streible, senior market strategist at RJO futures, said that it not surprising to see the hedge funds with record short positions as they have been aggressively positioning themselves for the Federal Reserve to hike rates following its Dec. 16 meeting -- the first rate hike in more than nine years. Higher interest rates would be U.S. dollar positive and negative for gold.
However, many analysts are now starting to question how much bad news supporting these short bets can be priced into the gold market. Streible added that while the gold market is expected to remain net short, it shouldn’t hit new records until after the Fed meeting, when investors and traders will start speculating on how aggressive the central bank will be in its new rate hike cycle.
The latest CFTC does not include Friday’s 2.3% rally in gold, after government data showed that 211,000 jobs were created in November, relatively in line with economist expectations.
Streible said the employment data added to already high expectations of a Fed rate hike in December, which prompted some money managers to take some of their profits, covering their short positions.
Alex Thordike, senior precious metals dealer, said in a note to clients Monday that there appears to be less confidence in the marketplace that prices can be driven lower.
“The moves experienced on Friday feel like a bit of a change of attitude. We think that some professionals have been caught short and would expect there to be a bit more topside pain to come. We expect a test of $1100 this week, which will be a critical level going into the end of the year,” he said.
Analysts at Barclays also agreed that the excessive short position in the gold market could be positive for prices in the short-term, underpinning the marketplace.
“Investors’ sentiment towards gold is still very negative,” the analysts said in a report. “However, speculative shorts in gold are now very big and the macro picture remains fluid…”
While investors appear to be negative on gold, they are slightly more positive on silver as hedge funds started to buy as prices continued to trend near historic lows.
The disaggregated COTR showed money-managed speculative gross long positions of Comex silver futures rose by 1,652 contracts to 54,282. At the same time, short contracts rose by only 70 contracts to 42,842. The silver market’s net length now stands at 11,440 contracts.
During the survey period, Comex March silver futures were relatively unchanged, falling 0.75%.