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Analysts: Gold Due For Profit-Taking After Bulls Hike Positioning

Kitco News

(Kitco News) - Now that money managers have hiked their bullish positioning in gold futures by more than 1,100% since late May, some of these traders are likely to sell in order to book profits, analyst said.

During the week-long period to June 25 covered by the latest data from the Commodity Futures Trading Commission, Comex August gold soared $68 to $1,418.70 an ounce. September silver gained 31.6 cents to $15.383.

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 disaggregated report shows that money managers upped their net long to 177,741 futures contracts from 150,516 the week before. The increase was largely split between fresh buying and short covering. The number of total longs rose by 13,152 lots, while gross shorts fell by 14,073.

The net length has soared 11-fold from net long of 15,937 as of May 28.

Analysts with Commerzbank said the net length is the largest since February 2018. However, they added, “this means there is scope for profit-taking here.”

In fact, analysts said that profit-taking has apparently already begun, with the metal lower so far on Monday. The catalyst was weekend talks between U.S. President Donald Trump and Chinese President xi Jinping in which the leaders reportedly agreed to a “truce” in a trade war while talks continue to resolve trade issues.

“The build in [bullish gold] positioning in recent weeks was substantial, and we think it is likely to come under further pressure as trade talks between the U.S. and China resume,” UBS said. The bank’s analysts later added, “Although this is backward-looking data, it provides some insight as to how much net length might still be at risk.”

Nevertheless, analysts at both UBS and Commerzbank suggested gold’s downside also will be limited by factors such as dovishness of central banks, including the U.S. Federal Reserve. UBS added that “strategic buying” is likely to emerge at lower prices.

Meanwhile, in silver futures, money managers’ net long jumped to 23,261 futures contracts from 4,315 the prior week. The majority of the rise was short covering, as the number of short positions declined by 12,190 lots. Gross longs rose by 6,756.

“Silver has attracted some interest in recent conversations, with many market participants seemingly perplexed by the persistent rise in the gold-silver ratio, which has been inching closer to the all-time highs,” UBS said.

A rising ratio means gold is outperforming silver.

“A lot of investors are seemingly becoming sympathetic to the view that silver looks cheap and may start to offer value especially as a way to express gold upside,” UBS said. “However, conviction remains lacking for now; slowing global growth and potential downside risks remain an obstacle for silver. The ratio coming off recent highs coincides with the improvement in risk sentiment.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.