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Bullish Gold Positioning Rises; Analysts Caution Of Correction

Kitco News

(Kitco News) - Large speculators built their bullish positioning in gold futures to a five-month high last week, but this in turn means potential for at least a temporary reversal, particularly after the first round of French political elections Sunday, analysts said.

Gold prices have fallen so far Monday while global equities and the euro are all stronger as worries about France leaving the euro zone have eased. Centrist candidate Emmanuel Macron and Far Right populist Marine Le Pen advanced to the second round of voting in May, but polls suggest Macron will win the second round by a large margin.

During the week-long period to April 18 covered by weekly positioning data from the Commodity Futures Trading Commission, Comex June gold rose $19.90 to $1,294.10 an ounce. May silver inched up 1.8 cents to $18.272.

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 most recent data show that as of April 18, money managers in the “disaggregated” report had a net-long position of 151,236 contracts in gold futures, up from 132,651 the prior week. This was mostly the result of fresh buying, as the number of total long, or bullish, contracts climbed by 19,160 to 199,001.

Analysts at Commerzbank pointed out that the 14% jump in net-long positioning was the fifth consecutive weekly increase, during which time net-long positioning increased three-fold. This also marked the highest level in over five months, the bank said.

“This had clearly generated a correspondingly high degree of correction potential,” Commerzbank added.

While acknowledging there is some scope for more longs in the futures market, Citi said fund inflows are likely to face headwinds as French election tail risks abate and as U.S. and European bond yields begin to move up off the lows.

Further, Citi said it is “a bit more hawkish than consensus” on the outlook for the U.S. Federal Open Market Committee, calling for two more hikes this year in June and September, and Fed balance-sheet tapering in December. Analysts said they expect U.S. dollar strength to resume and a return to a bear-steepening trend in U.S. Treasuries, which should be negative for gold price fundamentals.

With money-manager length quadrupling year to date and bullion prices testing $1,300 an ounce last week, “we think the bears that dominated market sentiment early this winter have been flushed out, but that the bulls will now need a better story to keep the rally going…,” Citi said.

Meanwhile, in the case of silver, net bullish positioning was 96,306, down from 98,564 the prior week. This occurred mainly due to long liquidation, as the number of gross longs fell by 3,960 lots. This more than offset the short covering, as the number of gross short positions declined by 1,702 contracts.

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