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Speculators Slash Bullish Gold Position; Price May Be Due For Bounce

Kitco News

(Kitco News) - Money managers slashed their bullish positioning in gold futures by 61% and flipped back to a net bearish position in silver during the most recent reporting week for data compiled by the Commodity Futures Trading Commission.  

“The CFTC’s statistics show that speculative market participants were significantly more pessimistic in the week to 1 May,” said a research note from Commerzbank.

“In our view, the currently very pessimistic positioning suggests that prices will soon embark on a countermovement, as speculative financial investors normally follow a very pro-cyclical approach – i.e., they are positioned too pessimistically at price lows,” the bank said. “If sentiment turns and short positions are covered, this should lend buoyancy to prices.”

During the week-long period to May 1 covered by the report, Comex June gold fell $26.20 to $1,306.80 an ounce. July silver fell by 66 cents to $16.127.

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 CFTC’s disaggregated report showed that money managers slashed their net-long position in gold futures to 39,317 contracts from 99,661 the week before. This occurred due to both long liquidation (total longs fell by 24,194) and fresh selling (total shorts rose by 36,150).

“Gold specs reduced positioning, liquidating longs and adding new shorts as a resurgent U.S. dollar drove the precious-complex lower,” said TD Securities. “Indeed, the dollar rallied as weak data across Europe saw the ECB [European Central Bank] refrain from getting hawkish, while the BOE is unlikely to hike rates next week, sending the yellow metal to $1,300/ oz support.”

However, TDS said, precious metals should recover some since the Federal Open Market Committee once again signaled a willingness to let inflation overshoot, suggesting that officials are not in a hurry to restrict monetary policy.

“Further, disappointing U.S. employment could further convince more specs to re-enter,” TDS said.

Bill Baruch, president of Blue Line Futures, commented that gold has lost nearly 5% since its April 11 high, and the net-long position of speculators is only 18% from its recent peak in February.

“Furthermore, the metal has battled to hold the psychological $1,300 mark as gold bulls liquidated to bring the net-long position to the lowest level since last July,” Baruch said. “Now that longs have jumped ship and the Federal Reserve is willing to allow inflation to run hot, gold is maybe the most attractive it’s been above $1,300 since 2011. Watch for gold to make a run to $1,330 this week; a close above here places the bulls squarely back into the driver’s seat.”

In the case of silver, speculators returned to a net-short position of 23,886 contracts after they had stood at a net-long 4,200 the week before. This occurred as money managers increased their total bearish positions by 24,933 lots while cutting gross longs by 3,153.

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