Low bullish positioning in futures market bodes well for gold prices - analysts
(Kitco News) - Money managers in the futures market remain lukewarm toward gold, but this reduces the chance of a massive long-liquidation sell-off and means potential buying whenever these participants decide to jump back into the market, analysts said.
The most recent weekly report from the Commodity Futures Trading Commission (CFTC) shows that money managers cut their bullish positioning in gold futures during the week to May 5. During that time period, Comex June gold slid $11.60 to $1,710.60 an ounce, while July silver lost 21.8 cents to $15.11.
Commerzbank analyst Carsten Fritsch pointed out that the last time the net length among money managers was any lower was back in June of last year. However, he put a positive spin on the low positioning.
“The low level of speculative interest reduces the likelihood of any such setback considerably,” Fritsch said.
This means less chance of a huge round of long liquidation whenever bulls decide to exit their positions, since most bullish futures traders eventually sell to exit from any commodity in order to avoid taking delivery.
“In fact, the gold price could climb noticeably if speculative investors were to jump on the bandwagon – and there is certainly good reason for them to do so,” Fritsch said. “They just need to look at the extremely expansionary measures taken by central banks and governments, which will lead to a massive increase in balance sheets and national debt levels.”
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 fell to 133,241 futures contracts from 146,406 the week before. The bulk of the decline was from bulls liquidating positions, as gross longs fell by 11,699 lots. There was also some fresh selling as reflected by a 1,466 increase in total shorts.
TD Securities blamed the decline in net length to an increase in appetite for so-called risk assets, as well as a stronger U.S. dollar.
“The concern surrounding an upward creep in real interest rates, as an extremely weak economy forces price expectations lower while the Fed stays steadfast to its commitment to keep Fed funds above zero, also contributed in reducing length,” TDS said.
Fritsch pointed out that speculative investors have been withdrawing from gold at a time when exchange-traded-fund investors have been buying in “grand style.” ETF gold holdings are up by some 45 metric tons since the start of May, he said.
“The skepticism among speculators could still be due to their negative experience in March, when the gold price slumped by $250 in the space of a week,” Fritsch said.
Meanwhile, money managers’ net-long position in silver fell to 10,467 futures contracts from 14,489 in the prior week. The decline was due to a combination of long liquidation (total longs fell by 2,573 lots) and fresh selling (gross shorts rose by 1,449).