SocGen: Gold, Silver ETP Investment Holds Up As Bullish Futures Posture Falls
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(Kitco News) - There have been diverging trends in the actions of futures speculators and exchange-traded-product investors in the gold and silver markets, according to an analysis by Societe Generale.
Speculators in the futures markets have scaled back bullish exposure to gold in recent weeks and are net bearish in silver, said a report Thursday from metals analyst Robin Bhar. Meanwhile, ETP investment was described as fairly stable or modestly rising in these metals.
Data for the futures markets comes from weekly reports published on Fridays by the U.S. Commodity Futures Trading Commission. In particular, analysts tend to focus on positioning of money managers in the “disaggregated” report or non-commercial accounts in the “legacy” report, often thought of as the “fast money” since these accounts tend to move in and out of markets fairly quickly.
“In contrast, ETP holdings tend to be ‘stickier,’ reflecting investor behavior beyond the short term, which is representing a strategic view,” Bhar wrote. “These longer-term investors continue to be attracted to precious metals as a means of portfolio diversification – [the] correlation of gold with other asset classes is low.”
Investors often turn to these metals as an alternative asset or hedge against geopolitical, economic and financial risks, and amid rising uncertainty across other asset classes. ETPs trade like a stock but track the price of the commodity, with metal put into storage to back the shares.
Gold Futures Vs. ETP Analysis
SocGen reports that the changed outlook in central-bank behavior toward more hawkish commentary has triggered a sharp reduction in managed-money futures positioning in gold. Since a recent peak in early June, the net long – or bullish – position was cut by 86% to 72.2 tonnes as of July 11, before an uptick in the most recent report for the period through July 18.
However, despite recent price weakness and some liquidation of ETP holdings, overall investment remains close to recent highs of around 2,500 tonnes, SocGen said.
“The fact that ETP holdings are relatively little changed allows us to conclude that longer-term investors continue to be attracted to gold as a means of diversification and to hedge against rising uncertainty across other asset classes,” Bhar said.
Silver Futures Vs. ETP Analysis
Meanwhile, in the case of silver, positioning of futures speculators was net short, or bearish, by 1,102 tonnes as of July 18, SocGen said.
However, total holdings in silver ETPs have steadily increased after having fallen during the first four months of this year, and the pick-up since May has returned holdings to the record level reached last October, SocGen said.
“As in the case of gold, we can conclude that longer-term investors continue to be attracted to silver as a means of diversification and to hedge against rising uncertainty across other asset classes,” Bhar said.