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Hedge Funds Sell Gold, Silver As Turmoil Hits Equity Markets

Kitco News

(Kitco News) - The biggest one-day point drop in equity-market history last week wasn’t enough to keep hedge funds in traditional safe-haven assets gold and silver, according to the latest trade data from the commodity futures trading commission.

Analysts have been warning for several weeks that a momentum shift was coming in precious metals. Particularly in gold, the market has been seen as overvalued after hitting a 1.5-year high last month.

In a recent interview with Kitco News, Eugen Weinberg, head of commodity research at Commerzbank, said that he sees a lot of “froth” in gold and prices probably need to consolidate around $1,300 for a while.

However, he added that if equity market turmoil picks up, investors will quickly jump into gold as a safe-haven asset.

“There should be reliable safe-haven demand at $1,300 an ounce,” he said.

Analysts have noted that gold was not able to attract significant safe-haven demand last week as the equity market correction was seen as a “healthy” move since markets have been significantly overvalued.

The Commodity Futures Trading Commission’s disaggregated Commitments of Traders report for the week ending Feb. 6 showed money managers reduced their speculative gross long positions in Comex gold futures by 24,220 contracts to 206,377. At the same time, short bets rose by 413 contracts to 23,448. Gold’s net length fell to 182,929 contracts.

Gold’s net length declined almost 12% from the previous week. During the survey period, gold prices dropped 0.69% as the market initially held a critical near-term support level.

Analysts at Commerzbank noted that they expect to see a further decline in gold’s net length as prices fell to a five-week low last week outside of the current commitment of traders report.

Commodity analysts at TD Securities noted that gold market saw strong selling at the start of a tumultuous week as investors needed to raise capital to cover equity losses.

“It could be that stable gold is being sold to cover margins in a declining equity market, suggesting that it is indeed performing its hedging functionality,” they said.

While gold saw a modest shift in speculative interest, hedge funds fled out of silver, pushing the market into neutral territory.

The disaggregated report showed money-managed speculative gross long positions in Comex silver futures fell by 11,615 contracts to 38,367. At the same time, short positions increased by 11,794 contracts to 35,349. Silver’s net length now stands at 3,018 contracts.

Silver’s net length dropped almost 89% from the previous week. During the survey period, silver prices fell 2.8% as critical support at $17 was unable to hold.

Analysts at Commerzbank said they expect to see further negative sentiment in the silver market in the near term.

“Because the second price slide only happened after the reporting date last week, positioning in silver is meanwhile likely to be net short,” they said.

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.