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Buckle Up! Momentum Shift Coming To Gold And Silver – Analysts

Kitco News

(Kitco News) - Momentum continues to shift in the gold market as hedge funds kept their exposure to gold and silver materially unchanged last week, according to the latest trade data from the Commodities Futures Trading Commission.”

Many analysts have warned that the gold’s overstretched market is on the cusp of a much-needed consolidation period, and speculative interest in the yellow metal is expected to continue to shift. Some analysts have said that a sharp rise in 10-year bond yields could start to weigh on gold as it raises the precious metal’s opportunity costs.

“There is likely to have been profit-taking given that the CFTC’s statistics show that speculative financial investors had previously maintained their net-long positions at a high level,” said analysts at Commerzbank.” We believe that this gave and still gives rise to considerable correction potential for precious metals prices.”

The Commodity Futures Trading Commission’s disaggregated Commitments of Traders report for the week ending Jan. 30 showed money managers reduced their speculative gross long positions in Comex gold futures by 5,406 contracts to 230,597. At the same time, short bets fell by 3,432 contracts to 23,035. Gold’s net length fell to 209,536 contracts.

Gold’s net length declined slightly less than 1% from the previous week. During the survey period gold prices were relatively unchanged holding around $1,340 an ounce.

“Gold specs reduced their exposure this week, adding new shorts and liquidating long positions after disappointing GDP data and aggressive USD weakness failed to provide enough juice to break the upper bound of the range,” said Bart Melek, head of commodity strategy at TD Securities. “Traders likely reduced exposure heading into the FOMC meeting and January nonfarm payrolls, which surprised on the upside, in terms of the headline jobs number as well as wage inflation. The yellow metal will likely continue its consolidation toward $1,320 an ounce in the near term.”

Bill Baruch, president of Blue Line Futures, is also looking for the gold market to see a reduction in bullish speculative interest. He added that while he is long-term bullish on gold, the market needs a consolidation period.

“I think the gold rally is overdone and I would not go chasing prices at these levels,” he said. “I would be looking to enter a long-term position again when prices fall to around $1,320 an ounce.”

Hedge funds also reduced their overall exposure in silver. The disaggregated report showed money-managed speculative gross long positions in Comex silver futures fell by 3,822 contracts to 50,036. At the same time, short positions fell by 6,519 contracts to 23,718. Silver’s net length now stands at 23,597 contracts. 26,427.

Renewed short-covering helped push silver’s net length up almost 12% from the previous week. Prices rose almost 1% during the survey period as the market struggled to hold the $17-an-ounce level.

Looking ahead, analysts are expecting to see a significant increase in bearish positioning in the near term. Friday, which will be covered in next week’s trade data, showed the gold/silver ratio hitting a two-year high above 80, meaning it now takes 80 ounces of silver to equal one ounce of gold. The historical average for the ratio is around 60 points.

The rise in the ratio came as silver prices underperformed the yellow metal.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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