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Money Managers Slash Net Bullish Gold Positioning

Kitco News

(Kitco News) - Large speculators scaled back their bullish positioning in gold futures during the most recent reporting week for data compiled by the Commodity Futures Trading Commission.

In fact, commodities brokerage SP Angel reports that bullish bets are now at the lowest level in more than two years.

During the week-long period covered by the report, Comex June gold fell $23.40 to $1,290.30 an ounce, while July silver lost 20.3 cents to  $16.269.

Net long or short positioning in the CFTC data reflects 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 shows that money managers’ net length in gold futures fell to 18,998 contracts in the week to May 15 from 41,639 the prior week.

“Gold specs reduced positioning last week, liquidating longs and adding new shorts,” said a research note from TD Securities. “Traders were convinced to get bearish the yellow metal as a further rally in the U.S. dollar, along with 10-year interest rates breaching 3%, saw prices trend lower and ultimately break the $1,300/oz support level.”

The bulk of the decline in net bullish positioning was due to fresh selling, as reflected by a 16,389 increase in gross shorts. There was also some long liquidation, as the number of total longs fell by 6,252.

Samuel Laughlin, senior trader with MKS (Switzerland) S.A., pointed out that the CFTC data showed that “dollar demand was evident,” with speculators having purchased just under $2.5 billion worth of U.S. dollar contracts while decreasing short positioning to $11.3 billion.

TDS does see an eventual price recovery in gold.

“While we expect gold to continue to trade in lockstep with the dollar in the near term, we suspect that the Fed will not be aggressive in raising rates, which should see gold perform better in the second half of the year,” analysts said.

In the case of silver, the net short was pared modestly to 16,613 futures contracts from 19,483 the week before. This was the result of short covering (total shorts fell by 1,748 lots) and fresh buying (total longs rose by 1,122).

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