‘Weak Longs’ Shedding Gold Bets At Fastest Pace On Record - AnalystsBy Kitco News
Monday October 17, 2016 13:06
(Kitco News) - For the second consecutive week, hedge funds liquidated their bullish gold and silver bets while increasing their short exposure, according to the latest data from the Commodity Futures Trading Commission.
The disaggregated Commitments of Trader report (COT), for the week ending Oct. 4, showed money managers shed their speculative gross long positions in Comex gold futures by 41,732 contracts to 203,033. At the same time, short bets grew by 9,591 contracts to 54,240. Gold’s net length now stands at 148,793 contracts.
During the survey period, gold prices ended up falling more than 1% testing key support at $1,250 an ounce.
According to analysts at Commerzbank, gold’s net length has hit its lowest point in more than four months, but it’s the speed at which money managers are shedding their gold bets that is the biggest surprise for the bank.
“In the last two reporting weeks, net long positions were decimated by around 42% or 106,000 contracts – the most pronounced position reduction within the space of two weeks since the data series began ten years ago,” they said.
However, they added that they are not expecting this momentum to last, as the selling pressure eventually subsides.
Jessica Fung, senior market analyst at BMO Capital Markets, isn’t quite convinced as the big drop in long positioning could be the start of a new shift in the marketplace.
“I’m not too concerned with the short speculative interest -- there will always be bears in the market -- I’m more concerned with profit taking because those were the investors who really drove this market up,” she said. “At the start of the year, we saw some short-covering and then we saw investors coming in and buy, so it’s not a good sign if those longs continue to leave.”
Bart Melek, head of commodity strategy at TD Securities, said that prices will have to drop below $1,250 an ounce to attract new liquidation. He added that selling seen in the past two weeks is the shaking out of “weak longs.”
Silver has seen a similar shift in speculative interest. The disaggregated COT report showed money-managed speculative gross long positions in Comex silver futures fell by 16,336 contracts to 72,048. At the same time, short positions rose by 2,625 contracts to 26,502. Silver’s net length now stands at 45,546 contracts.
Silver’s net length has dropped by more than 40% in the last two weeks. During the survey period, December Comex silver futures fell 1.6% as prices hovered around $17.50 an ounce.