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Hedge Funds' Gold Positioning Near All-Time Highs

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Hedge Funds' Gold Positioning Near All-Time Highs

Monday May 09, 2016 10:19
(Kitco News) - Hedge funds were significant gold buyers last week as prices pushed above $1,300 an ounce, hitting the highest level in 15 months, according to the latest data from the Commodity Futures Trading Commission.

The disaggregated Commitments of Trader report, for the week ending May 3, showed money managers increased their speculative gross long positions in Comex gold futures by 42,366 contracts to 248,842.




At the same time, short bets fell by 4,479 contracts to 29,947. The latest data shows the gold market is net long by 218,895 contracts.

Ole Hansen, head of commodity strategy at Saxo Bank, noted that gold’s net length jumped 27% from the previous week and is within reaching distance of its all-time record high seen more than five years ago.

Including options contracts, He noted that gold’s net length represents 23.4 million ounces, just down from 25.4 million ounces seen in August 2011.

During the survey period, gold prices saw significant buying momentum with June Comex gold futures rallying 3.7% as prices hit a high of $1,306 an ounce.

However, since then prices have been unable to push above that psychological boundary. Analysts at Commerzbank said that because of gold’s extreme net positioning, they are expecting to see continued profit taking in the near term.

However, Bart Melek, head of commodity strategy at TD Securities, explained that the gold market doesn’t look over-extended compared to the beginning of previous bull markets; however, the rally remains dependent on the Federal Reserve and interest rates, he added.

“While gold looks overbought on numerous metrics, spec positioning looks similar to what it was back at the end of 2005/early 2006, before a large rally started,” he said. “If the Fed is more restrictive than traders currently expect, gold is due for a big correction.”

While hedge fund are buying gold, they are selling silver, as the latest COT data shows an increase in short bets for the grey metal.

The disaggregated COT report showed money-managed speculative gross long positions in Comex silver futures rose by 1,187contracts to 81,012. At the same time, short positions rose by 3,981 contracts to 12,646. Silver’s net length now stands at 68,366 contracts.

“Investors cut longs and grew short holding on the belief the rally may have been overdone for now,” said Melek.

Although the short selling was three times as strong as the buying pressure, analysts at Bank of America Merrill Lynch noted that the metal’s positioning is only 1% off its three-year high.

Although Comex July silver futures managed to hit a 15-month high, above $18 an ounce, strong selling pressure late in the survey period helped to cap the metals performance with a gain of 1.7%.

By Neils Christensen of Kitco News;nchristensen@kitco.com





Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.