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Long-term investors are the ones boosting gold, not futures traders - analysts

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(Kitco News) - Longer-term investment buying such as exchange-traded funds has been the main fuel pushing gold prices higher in recent weeks, with Commodity Futures Trading Commission (CFTC) data showing the net-bullish posture of money managers in the futures market has not changed much so far this month, analysts said.

The net-bullish position increased modestly in the week to April 14 to 155,244 futures contracts, yet remains in a narrow range of 7154,079 to 157,409 lots since March 17. Meanwhile, the most-active Comex June gold-futures contract soared from a close of $1,528.10 on March 17 to a session high of $1,788.80 on April 14, the cutoff date for the most recent CFTC positioning report.
Money manages trading in the futures market have been “hardly involved at all” in the price rise, commented Commerzbank analyst Carsten Fritsch.

“For five weeks now, their net-long positions have remained virtually unchanged at a comparatively moderate level,” Fritsch said. “The price rise...was not driven by speculation, in other words, which also means there is no need for any correction on the part of this group of investors.

“The robust purchases of gold ETFs did play an important role in the gold-price upswing, on the other hand. They have totaled 112 [metric] tons since the beginning of the month.”

George Gero, managing director with RBC Wealth Management, echoed similar sentiments, commenting that the stronger tone in gold prices this month has not been reflected in the net-long position of futures speculators.
“This is now the 20th instance of inflows [of gold] into ETFs, and silver is being added into ETFs as well,” he said.

Precious-metals ETFs trade like a stock but track the price of the commodity, with metal put into storage to back the shares.

During the week-long period to April 14 covered by the last CFTC report, Comex June gold rose $85.20 to $1,768.90 an ounce, while May silver climbed 65 cents to $16.13.

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, 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’ net-long position in gold as of April 14 climbed to 155,244 futures contracts from 152,482 the week before. The uptick occurred as the fresh buying (increase of 5,407 gross longs) outpaced the fresh selling (increase of 2,645 total shorts).

Money managers upped their bullish positioning as volatility moderated, with buying occurring even though risk appetite also improved, pointed out a research note from TD Securities.

“Markets also positioned in gold in response to waning USD [U.S. dollar] upward momentum, sending gold prices toward multiyear highs,” TDS said. “But not all exposure growth was on the long end. Traders also increased shorts, as prices moved toward resistance levels.”

Gero said futures traders may become even more involved with the gold market as political headlines “heat up” in the coming weeks. Further, he suggested gold could remain strong even if the U.S. dollar does likewise.

“In the past, when you had strength in the dollar, you would have a sell-off in gold, but no longer,” Gero said.

In the current environment, traders have often bought both gold and the dollar at the same time as a safe haven, he explained. Further, he said, when the dollar rises, it’s not because of U.S. interest-rate increases, which hurt gold, but is instead because of weak economic fundamentals in other countries hurting their currencies even more.
Meanwhile, money managers trimmed their their net-bullish stance in silver to a net long of 15,448 futures contracts from 16,622 futures the week before. The decline was the result of both fresh selling (gross shorts rose by 786 lots) and long liquidation (total longs fell by 388).

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