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Hedge funds take profits in silver as retail mob drives prices higher - CFTC

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(Kitco News) - As a mob of retail investors jumped into silver last week, hedge funds used the rally, which pushed prices to an eight-year high, to lock in some profits, according to the Commodity Future Trading Commission's (CFTC) latest trade data.

The data revealed that the surge in demand was almost primarily due to retail interest in the precious metal. The rally prompted only negligible short-selling among hedge funds.

CFTC disaggregated Commitments of Traders report for the week ending Feb. 2 showed money managers decreased their speculative gross long positions in Comex silver futures by 5,042 contracts to 61,069. At the same time, short positions increased by only 682 contracts to 22,431.

"The figures show that speculative financial investors reduced their net long positions by 10% in the week to 2 February, using the price rise to take profit," said Carsten Fritsch, precious metals analyst at Commerzbank, in a note Monday.

Ole Hansen, head of commodity strategy at Saxo Bank, noted that along with money managers, the data showed producers also took advantage of the higher prices and increased their short hedge positions. He added that the short-selling represented less than 20% of the daily silver futures turnover.

"In other words, a position that never could trigger the squeeze that the social media dreamt up," he said.

While all eyes were on silver last week, hedge funds increased their bearish stance on gold, liquidating long positions and increasing their short bets.

The disaggregated report showed money-managed speculative gross long positions in Comex gold futures fell by 5,753 contracts to 137,062. At the same time, short positions rose by 2,868 contracts to 49,284.

Gold's net length now stands 87,778, down nearly 9% from the previous week.

The selling pressure caused gold prices to fall below initial support around $1,850 an ounce.

Fritsch noted that as prices trade around $1,830 an ounce, the market could see some more selling pressure.

"Due to the current high-risk appetite on the markets, we see downward risks for gold in the short term because safe havens like gold are in less demand at present," he said.

Analysts at TD Securities also see the potential for lower prices in the near-term.

"Following the precious metals rout which followed the rally this week, the market will likely continue to see length erode and prices consolidate before long-term fundamentals take both metals higher further into 2021," the analysts said in a report.

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