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Money managers boost bullish gold positioning by 22%

Kitco News

(Kitco News) - Large speculators sharply hiked their bullish positioning in gold futures by 22% during the most recent reporting week for data compiled by the Commodity Futures Trading Commission.

Analysts attributed this to both ongoing safe-haven buying due to fears of the coronavirus impacting the global economy, as well as expectations that the Federal Reserve remains dovish.

Gold prices have been boosted not only by buying from speculative traders in the futures market, but also by exchange-traded-fund investors, Commerzbank pointed out in a research note. However, the bank added, this also means price falls can be expected whenever profit-taking occurs.

During the week-long period to Feb. 18 covered by the report, Comex April gold rose $33.50 to $1,603.60 an ounce, while March silver climbed 55.3 cents to $18.15.

Net long or short positioning in 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. However, 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 hiked their net-long position to 238,546 futures contracts as of Feb. 18 from 195,671 the week before. This was due to fresh buying, as the number of total longs soared by 46,787 lots. This overwhelmed the fresh selling (an increase of 3,912 gross shorts).

“Despite being a crowded trade, investors continued to pile into long gold positions,” said TD Securities. “Continued uncertainty associated with contagion has kept the safe-haven bid alive, but it is not the only factor seeing gold surge...in recent days. Indeed, the recent flattening of the yield curve appears to be telling the Fed they need to cut rates further, helping give the yellow metal an additional boost.

“Overall, the structural bid in gold remains driven by real rate suppression from global central banks and the general willingness to let inflation overshoot for some time, should it be achieved.”

In fact, TDS said, the expectations for dovish central bankers mean any price pullbacks, whenever the coronavirus fears abate, are likely to be bought.

Money managers also hiked their bullish stance in silver to 65,952 futures contracts from 54,707 the week before. This was almost entirely due to fresh buying, as the number of total longs rose by 11,203 contracts. There was also a trace of short covering, in which traders buy to exit short, or bearish, trades. Gross shorts fell by 42 contracts.

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