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Funds Trim Gold Net Long, Build Record Silver Net Short

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(Kitco News) - Large speculators trimmed their bullish gold position and now have their largest bearish net positioning ever in silver, based on the latest reporting week for data compiled by the Commodity Futures Trading Commission.

The net-short, or bearish, positioning in silver stood at a record high as of the Feb. 27 cut-off date for the most recent CFTC statistics, pointed out commodities brokerage SP Angel and Commerzbank.

During the week-long period that was covered by the report, Comex April gold fell $12.20 to $1,319.20 an ounce. May silver slid 5 cents to $16.43.

Net long or short positioning in the CFTC data reflect the difference between the total number of bullish (long) and bearish (short) 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 disaggregated report shows that money managers decreased their net-long position in gold to 150,019 lots from 175,455 the prior week, which INTL FCStone characterized as a “hefty drawdown.” This was due to both long liquidation (as reflected by a decline of 12,923 gross longs) and fresh selling (as reflected by an increase of 12,513 total shorts).

Still, last week’s price action opened the door to a “tremendous opportunity” for bulls to reposition, said Bill Baruch, president of Blue Line Futures.

“Though longs began reducing their holdings in February, shorts did so at a faster pace and the net-long position [ratio] was at 13:1 as of reporting Feb. 20th,” he said. “As of reporting for the week ending this last Tuesday the net-long position reached 6.5:1, the lowest level since the week ending Dec. 27th; gold rallied $70 or 5.5% from that point to its high.

“Our assumption here is that Thursday’s sharp sell-off to major three-star support forced further liquidation from the long camp and many of those longs have yet to reposition. In conclusion, we remain outright bullish in bias and believe that gold is one small catalyst away from a strong surge higher.”

In silver, money managers’ net-short position now stands at 16,435 lots, compared to a net short of 10,522 the previous week. This was mainly due to fresh selling by large speculators, as the number of total short positions rose by 6,389. Gross longs also climbed – by 476 – but this was overshadowed by the fresh bearish trades. 

“Silver continues to fall out of investor favor with hedge funds and other large speculators, [which] are now most bearish ever on the precious metal,” said commodities brokerage SP Angel.

In a monthly commodities outlook, INTL FCStone said gold and silver could face headwinds from a stronger U.S. dollar and bond yields during March, with a Federal Open Market Committee meeting scheduled for mid-month.

“In the silver’s case, the latest CFTC data seems to suggest that funds are coming around to that conclusion as well,” INTL FCStone said.

Added Commerzbank: “Net shorts in silver were record-high on the reporting date because speculative financial investors had expanded their bets on falling silver prices.”

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