CFTC Data Shows Short Covering, Not Safe-Haven Demand Driving Gold Prices – Analysts

By  Paul Ploumis 01 Sep 2015  Last updated at 02:44:22 GMT

According to Commodity Futures Trading Commission, safe haven demand is not the main factor driving gold prices.

(Kitco News) - Some analysts are questioning just how strong safe-haven demand for gold is as the latest data from the Commodity Futures Trading Commission showed significant short covering in the marketplace.

For the week ending Aug. 25, the disaggregated Commitment of Traders Report (COTR) showed money-managed speculative gross long positions of Comex gold futures rose by 7,381 contracts to 119,456. At the same time, short covering was more than three times as strong, with gross shorts falling by 25,316 contracts to 78,842. Gold’s net length now stands at 40,614 contracts.

Commodity analysts at Commerzbank said, in a research note published Monday, that gold’s gross short positons have fallen to their lowest level in 12 weeks.

During the survey period, Comex December gold futures rallied to a six-week high at $1,169.80, but the market was unable to hold most of its gains as prices showed an increase of only 0.6% by the end of the  five trading sessions.

Phillip Streible, senior marketing strategist at RJOFutures said that the data indicates that money managers are not interested in establishing new long positions and were probably readjusting to shifting expectations of the Federal Reserve’s interest rate hike. He added that money managers were probably more interested in jumping into equity markets, taking advantage of extremely low prices.

He also noted that the gold market could continue to spike higher on further short covering, but with few new longs entering the marketplace, there is nothing to create a sustainable rally.

Ole Hansen, head of commodity strategy at Saxo Bank, also suggested that prices could struggle in the near-term; in a commentary posted on tradingfloor.com, he wrote that short-sellers now have more ammunition to drive prices lower “after having cut bearish bets by one-third during August.”

“This put to rest, at least for now, the belief that the rally was driven by safe-haven demand,” he said.

But at least gold has been able to attract some modest investment flows; money managers continued to flee the silver market, according to the latest CFTC trade data.

The disaggregated COTR showed money-managed speculative gross long positions of Comex silver futures fell by 2,310 contracts to 37,735. At the same time, short contracts fell by 2,553 contracts to 37,815. The silver market is still net short, but by only 80 contracts.

While gold hit a six-week high during the survey period, the silver market was on its way to a six-year low, falling 1.7% during the five trading days.

Silver’s new low actually occurred during a new survey period so investors will have to wait until the next report, to be released Friday, to assess the latest damage done to the speculative market.

Courtesy: Kitco News