Fresh Shorts Are Driving Gold’s Sell-Off - Scotiabank
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(Kitco News) - The recent move down in gold prices has been driven by fresh short positions amid lack of risk-off sentiment, according to Scotiabank.
Despite increased interest from investors and central banks this year, gold prices have been struggling all of April, hitting four-month lows on Tuesday as U.S. equities rallied to new record highs. June Comex gold futures last traded at $1,271.60, down 0.13% on the day.
“During Q1’19, central banks bought almost 90 tonnes. Over the same period, investors (ETF & COT) added 1.5m oz to gold holdings, almost 1/3rd less than what central banks accumulated. Overall despite combined CB & investor annualized inflows gold prices were largely unchanged in Q1’19,” Scotiabank commodity strategist Nicky Shiels said in a report published last week.
Gold’s move down in prices is hard to explain, admitted Shiels while pointing to new short positions as the most likely culprit.
“The known data doesn't fully explain away price action; there was either a lack of physical OTC buying or there was active unknown OTC selling,” she said. “The most recent COT report shows net managed COT investors only own 5.6m oz. The positioning exit was driven by long liquidation—as gold prices failed (terribly!) at $1,350, almost 5.5m oz of gross investor length exited.”
There are ten long investors for every short in gold, Shiels noted, adding that there is one long for every short in silver.
“It serves to show there is still scope for fresh gold shorts to enter from either a historical basis or relative to Silver as a somewhat leading indicator,” she wrote.
This could mean that gold’s most recent sell-off is being triggered by fresh short positions in the precious metals space, the report highlighted.
“The further $40 repricing lower in Gold through key support at $1,280 was/is probably mostly driven by the influx of fresh opportunistic shorts,” Shiels said last week.
The risk-on mood, made up of stronger U.S. dollar and higher equities, is not helping gold, with investors not seeing the need for protection at the moment.
“The macro backdrop for owning gold has soured considerably as prices are torn between dovish central banks but rising risk assets, a lack of any macro, economical or geopolitical fear, a stubbornly structurally strong $ and rising yields on hopes for better ex -US data,” Shiels said.