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Specs Rebuild Bearish Gold Positions, But This Could Be Temporary

Kitco News

(Kitco News) - Large speculators rebuilt their bearish positioning in gold futures during the most recent reporting week for data compiled by the Commodity Futures Trading Commission, yet this may have been a temporary phenomenon, with prices since rising again amid a fall in the U.S. dollar, analysts said.

During the week-long period to Oct. 30 covered by the CFTC’s report, Comex December gold fell by $11.50 to $1,225.30 an ounce, while December silver lost 33.1 cents to $14.462. Since that Oct. 30 cut-off, however, both metals are higher again – with gold at $1,233.50 and silver at $14.695 as of 10 a.m. EST.

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.

“Gold specs returned to reducing length, as investors took profits amid a more stable equity market,” said a research note from TD Securities. “But, with the equity market still on edge and the VIX [Index] north of 20, along with the U.S. dollar easing off the highs and the Chinese yuan strengthening amid trade optimism, traders likely took on some new longs at the end of [last] week.”

The most recent disaggregated report shows that money managers’ net-short position increased to 55,523 futures contracts from 38,116 the week before. Prior to this, the net-short position had declined by 65% in the two previous reporting weeks after it had stood at 109,454 on Oct. 9.

The bulk of the decline during the week to Oct. 30 was longs bailing out of positions, as the number of longs declined by 19,263. The number of shorts fell 1,856 lots.

The reduction in the net-short the previous week, coupled with U.S. dollar strength, both played roles in money managers hiking their net short again as of Oct. 30, said Ole Hansen, head of commodity strategy at Saxo Bank. However, gold prices got a boost at the end of last week, after the cutoff for the CFTC data, when the dollar weakened again, he added.

In the case of silver, the net-short position of money managers increased to 25,176 lots from 21,025 the week before. The increase was driven by primarily fresh selling, as gross shorts increased by 3,927 lots. Gross longs declined by 224.

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