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Gold’s summer rally is starting to fade as hedge funds drop bullish bets

Kitco News

(Kitco News) - The gold market continues to struggle to find momentum below $1,500 as hedge funds start to liquidate their bullish bets, according to the latest trade data from the Commodities Futures Trading Commission (CFTC).

The CFTC's disaggregated Commitments of Traders report, for the week ending Oct. 15, showed money managers dropped their speculative gross long positions in Comex gold futures by 17,989 contracts to 213,987. At the same time, short bets rose by 6,725 contracts at 38,200. Gold's net-long positioning currently stands at 175,787 contracts, down more than 12% from the previous week.

The data shows that gold’s net length is at its lowest point since early July and bearish bets are at near a two-month high.

Prices dropped more than 1% as the market was unable to hold critical support around $1,500 during the survey period.

The market is mixed as to where prices are headed next. Some analysts note that even after the latest drop in bullish speculative positioning, the market is still elevated and could be at risk of further long liquidation.

However, other analysts have noted that the latest reduction in bullish bets has taken some froth out of the marketplace since the summer’s exceptional rally.

“Since the cyclical high achieved at the end of September, net long positions in gold have decreased by a good quarter. Thus much of the speculative exaggeration should have been largely removed and the selling pressure from this side should abate,” said analysts at Commerzbank.

Ole Hansen, head of commodity strategy at Saxo Bank, noted that even with the renewed selling pressure, the gold market has done a good job holding on to most of its summer gains.

“Range bound gold trading since early August around $1500/oz has sapped interest at a time where stocks have recovered and bond yields have reversed higher. With these developments in mind gold has done very well in avoiding a bigger correction,” he said.

Many analyst have said that ongoing uncertainty surging through financial markets will continue to support prices in a trading range between support at $1,480 and $1,520 an ounce.

“A lot of this uncertainty is turning into nightmares for some investors,” Ashfin Nabavi, head of trading with MKS (Switzerland) S.A., said in a recent interview with Kitco News. “I would prefer to trade the range from the long-side,” he said. “I don’t want to be short in this market.”

Along with gold, hedge funds continue to liquidate their bullish bets in silver.

The disaggregated report showed money-managed speculative gross long positions in Comex silver futures fell by 3,686 contracts to 69,627. At the same time, short positions increased by 1,888 contracts to 28,995. Silver's net length currently stands at 40,632 contracts, also down 12% from the previous week.

Silver’s net length is at its lowest point since mid-August. During the survey period, silver prices fell 1.8% as the market remained trapped below $18 an ounce.

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.