Money Managers Jumping Out Of Gold And Into Silver – CFTC Report
Monday July 25, 2016 11:32
(Kitco News) - While hedge funds and money managers were lowering their exposure to the gold market, they were increasing their bullish bets in silver, according to the latest data from the Commodity Futures Trading Commission.
The disaggregated Commitments of Trader report (COT), for the week ending July 19, showed money managers increased their speculative gross long positions in Comex silver futures by 5,969 contracts to 98,948. At the same time, short bets increased by only 684 contracts to 7,796. The latest data shows the silver net length is at a new record high at 91,152 contracts.
The record speculative interest in silver came as September Comex silver future fell 1% with prices testing support at $20 an ounce, during the survey period.
Analysts at Commerzbank said that the rise in speculative interest coupled with the fall in prices is an indication of weak physical demand moving forward. They noted that they are expecting to see money managers take profits in their bullish bets, reducing the market’s overextended positioning.
“A massive overhang of bets is…hanging over silver like the sword of Damocles,” the analysts said.
The disaggregated COT report showed money-managed speculative gross long positions in Comex gold futures rose by 8,789 contracts to 287,317. At the same time, short positions dropped, falling by 2,057 contracts to 34,920. Gold’s net length now stands at 252,397 contracts.
Although gold investors fled the marketplace, prices were relatively flat, with August gold futures down 0.13% during the survey period.
This is the second consecutive week the gold’s net length has declined; however, analysts at Bank of America Merrill Lynch said that money-managed positioning is only two percentage points down from its all-time highs seen at the start of the month when prices hit a 24-month high.
Similar to their silver outlook, Commerzbank analysts are expecting to see more profit-taking in gold, further reducing the market’s overextended speculative positioning.
“In absolute terms, however, net-long positions are still at a very high level, meaning that there is further correction potential for the gold price from this side,” they said.
George Gero, managing director with RBC Wealth Management, said it is not surprising the weak hands were getting out the gold market ahead of options expiration, which takes place this week. He added that “traders are waiting for a better opportunity to bargain hunt.”
Bart Melek, head of commodity strategy at TD Securities, said that near-record net-long positioning coupled with rising expectations of the Federal Reserve raising rates later this year was enough to spook money managers to reduce their exposure in the yellow metal.