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Short Covering Pushed Gold Prices To One-Year Higher - CFTC

(Kitco News) - Although hedge funds continued to dip into the gold market, it was the exiting of their short bets that drove prices to a one-year high, according to the latest data from the CFTC.

The disaggregated Commitment of Trader Report for the week ending Feb. 16, showed money managers increased their speculative gross long position in Comex gold futures by 5,160 contracts to 126,219. At the same time, short bets fell by 15,217 contracts to 45,206. The latest data shows the gold market is net long by 81,013 contracts.

Analysts at Commerzbank said in their daily research note that gold’s net length is now at its highest level since October.

During the survey period, gold saw its biggest one-day rally since October 2011, with the price hitting a 12-month high of $1,263.9 an ounce, as a result of the strong short covering; however, by the end of the period, prices only showed a modest gain of 1.6%.

Monday, April gold settled the session at $1,210.10 an ounce, down $20.70 on the day.

However, some analysts noted that despite gold’s almost non-stop rally since its December lows, the market could be losing some momentum.

Ole Hansen, head of commodity strategy at Saxo Bank, said that the rally in the gold market exposes it to long liquidation, also known as profit taking, which could drive prices to as low as $1,167.50 an ounce.

In a recent email to Kitco News, Erica Rannestad, senior analyst at Thomson Reuters GFMS, also agreed that prices could fall in the near term as renewed interest in gold has pushed speculative interests to being net long 81,000 contracts, up from the being net short by around 27,000 contracts at the start of the year.

“The decline in gold prices may be transitory and largely the result of profit-taking after prices hit year-highs,” she said.

However, market analysts at Bank of America Merrill Lynch said that they could see continued gains in the gold market, as the market is 77.5% from its three-year maximum net length of 153,237 contracts.

“Positioning is not stretched in gold despite the recent rally in price,” they said.

Similar to gold, short covering in silver has helped put the market’s net length to nearly a three-year high. The disaggregated report showed money-managed speculative gross long positions in Comex silver futures rose by 1,849 contracts to 60,725. At the same time, short contracts fell by 6,128 contracts to 13,004. The silver market’s net length now stands at 47,721 contracts.

During the survey period Comex March Silver futures only showed a gain of 0.32%, despite prices nearly reaching a four-month high.

Monday, March silver settled the session at 15.184 an ounce, down 18.9 cents on the day.

By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow Neils Christensen @neils_C

 

 

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