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Money managers hike bullish silver positioning but scale back in gold

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(Kitco News) - Weekly positioning data from the Commodity Futures Trading Commission (CFTC) showed that money managers hiked their net-bullish positioning in silver futures at the same time they were cutting this in gold.

During the week-long period to June 2 covered by the most recent CFTC data, Comex August gold rose by 0.3% to $1,734 an ounce, while July silver jumped by 3.8% to $18.26. During this time, based on spot prices, the gold-silver ratio fell from 99.9 to 95.7.

The moves occurred at a time when equities were steadily rallying in a risk-on environment amid increased economic optimism now that economies are reopening after prior lockdowns aimed at combating the COVID-19 pandemic.

“We probably saw people leave gold to get into stocks,” said Phil Flynn, senior market analyst with at Price Futures Group, in an interview with Kitco News.

Meanwhile, silver has far greater industrial applications, so benefited from the improving economic optimism, Flynn said. Further, the metal this spring was widely considered undervalued relative to gold, so likely drew some investment buying in its role as “poor man’s gold,” as it is often called.

“People have looked at silver’s performance recently and it looked cheap compared to gold,” Flynn said. “So the combination of the factors – the economy is doing better, which will increase industrial demand, along with the fact that people will want to exposure to [precious] metals and can do it cheaper in silver – seems to have attracted more people this week to silver.”

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.

The CFTC’s “disaggregated” report showed that money managers’ net-long position in silver climbed to 26,718 futures contracts as of June 2 from 26,107 in the prior week. This occurred as the fresh buying outpaced the fresh selling in a week when both increased. Total longs rose by 2,974 lots, while gross shorts increased by 2,363.

Meanwhile, money managers’ net-long position in gold fell to 100,355 futures contracts from 113,081 the week before. The bulk of the decline was long liquidation, as gross longs fell by 11,911 lots. There was also some fresh selling, as reflected by an increase of 815 total shorts.

“Speculative participation in gold continues to dwindle as surging risk appetite saps interest from the market, with traders liquidating long positions and adding shorts,” said a research note from TD Securities. “Safe-haven flows likely reversed course amid fiery equity markets fueled by unprecedented stimulus liquidity and improving economic sentiment as economies reopen.”

Further, the strong U.S. May jobs report on Friday coupled with 10-year Treasury yields nearing 1% are likely prompted further liquidation at the end of last week, TDS said. August gold fell sharply on Friday after the government said nonfarm payrolls rose by 2.5 million last month when economists were expecting a big decline instead.

“But, if this is indeed the beginning of a V-shaped recovery, this recent dip in gold represents an ideal entry point as it signals the end of deflationary concerns and the beginning of increasing inflation expectations, which along with a Fed keeping rates at zero, keeps real rates suppressed into deeper negative territory,” TDS said.

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