Gold Bears Feeling Some Heat But Not Sweating Yet - Analysts
(Kitco News) - Hedge funds continue to pare back their historic gold short positions but at a glacial pace, with the yellow metal continuing to hang around the critically important psychological area of $1,200 an ounce.
The latest trade data from the Commodity Futures Trading Commission showed money managers shed some of their bearish bets for the second time in the last three weeks.
The CFTC's disaggregated Commitments of Traders report, for the week ending Sept. 11, showed money managers dropped their speculative gross long positions in Comex gold futures by 1,058 contracts to 100,593. At the same time, short bets fell at a faster pace of 8,561 contracts to 175,812. Gold’s net-short positioning currently stands at 75,219 contracts. While still near historic levels, gold’s net length declined by 9% from the previous week.
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.
According to some analysts, short covering during the survey period helped to push gold prices to a two-week high; however, the buying pressure wasn’t enough to spark a larger short squeeze.
Ole Hansen, head of commodity strategy at Saxo Bank, said in a recent interview with Kitco News that he thinks prices need to push above $1,236 before gold bears start to get nervous.
While the price action in gold has been relatively neutral with little momentum found on either side of the $1,200-an-ounce level, analysts at Commerzbank said that speculative positioning still supports higher prices.
“[Gold shorts] are still at a high level at a good 75,000 contracts, however, so there is further potential for short covering and therefore for higher prices from this side,” they said.
Commodity analysts at TD Securities also see further potential for a short-covering rally in gold. However, the bank is also optimistic on gold because of another indicator in the trade data.
While money managers are net negative gold, TDS noted that commercial positions are bullish and at their highest levels since 2001, “which implies they see value at current prices,” the analysts said.
“That being said, we suspect that any rally in gold will remain short-lived until the dollar weakens further,” they added.
While some commodity analysts see potential for gold, they are not so optimistic on the silver market as investors on both sides reduce their exposure in the precious metal.
The disaggregated report showed money-managed speculative gross long positions in Comex silver futures dropped by 2,525 contracts to 53,034. At the same time, short positions fell by 3,373 contracts to 101,109. Silver’s net-short positioning was relatively unchanged from the precious week at 48,075 contracts.
During the survey period silver prices fell to a low not seen since early 2016. At the same time, the gold-silver ratio hit its highest level in more than 20 years. The price continues to hover around its recent lows, just above $14 an ounce.
According to some analysts, not only does sentiment in the precious-metal market need to improve but optimism also needs to rise in base metals before silver prices can outperform gold.