Funds Hike Bullish Positioning In Gold Amid Global Uncertainties
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During the week-long period to May 7 covered by the data, Comex June gold was nearly steady – losing just a dime -- to $1,285.60 an ounce, while July silver fell 5.8 cents to $14.926.
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 stood net long by 9,547 gold-futures contracts as of May 7, after they had been nearly flat the prior reporting week, when there was a tiny net long of 76 lots. The bulk of the increase was fresh buying, as reflected by a 7,816 rise in gross longs. However, there was also some short covering, as traders bought to offset bearish positions, reducing gross shorts by 1,655 lots.
Sean Lusk, director of commercial hedging with Walsh Trading, told Kitco News that funds are stepping back into the long side of the gold market amid uncertainty around the world. Global markets are going back and forth on whether to expect a trade deal or trade war between the U.S. and China. Meanwhile, there are geopolitical issues in parts of the world and political uncertainty in the U.S. Further, financial markets are not anticipating any more U.S. rate hikes, and an all-out trade war could even mean a rate cut to offset any economic damage.
"You add everything together, where would you rather be – short or long?" Lusk asked.
He then answered the question – for now, funds are leaning long.
"With everything going on, you can debate how bullish it is," Lusk said. "But it's not bearish."
Money managers increased their net short in silver to 14,139 lots, compared to 13,738 the previous week, as the amount of fresh selling outpaced the fresh buying. Total longs rose by 3,951 contracts, but total shorts climbed by even larger 4,352 lots.
Lusk commented that silver is drawing less enthusiasm than gold due to uneasiness about recently weaker equities and future industrial use of the metal.
Meanwhile, TD Securities pointed out that palladium speculators further decreased their net length, meaning much "dry powder" for prices to rise whenever bulls re-enter the market. The metal has given up nearly $300 from the record high hit back in March, yet remains at historically high levels. Money managers exited 670 long positions in the latest reporting week, drawing their net-long down to 9,282.
"While we caution that car tariffs are likely the next item on the [U.S.] administration's trade file, as a decision regarding the Commerce Department's recommendation to the president is expected to be announced [in the not-too-distant future], the metal may be less fundamentally vulnerable than just a few months ago," TDS said. "With fewer speculative longs in the mix, the metal's prices remain less exposed to such risks, particularly as lease rates have subsided, suggesting more availability relative to just a few months ago."