Hedge Funds Push Gold Bullish Bets To Record Level

By Kitco News

Monday June 27, 2016 15:53

(Kitco News) - Hedge funds and money managers were buying gold as prices were dropping, ahead of the British referendum on the future of its EU membership, according to the latest trade data from the Commodity Futures Trading Commission. 

Friday’s report showed that gold’s speculative net length reached historic highs last week.

The disaggregated Commitments of Trader report (COT), for the week ending June 21, showed money managers increased their speculative gross long positions in Comex gold futures by 17,436,contracts to 274,936. At the same time, short bets fell by 3,732 contracts to 24,528. The latest data shows the gold market is net long by 250,408 contracts.

Gold’s bullish bets increased more than 9% from the previous week.

During the survey period, gold prices fell 1.2% as the “remain” side started to gain traction, to no avail as the nation voted to support a Brexit. Investors will have to wait until Friday to see how gold’s speculative positioning has changed as a result of the Brexit vote.

Ole Hansen, head of commodity strategy at Saxo Bank, said that he was surprised to see gold’s speculative interest continue to expand last week. Prior to the release of the data, Hansen said in an interview with Kitco News, that he was expecting to see gold’s net length fall because of the recent sharp price decline.

Although the gold market has defied expectations, Hansen said that it is looking a little over-extended.

“With fundamentals increasingly providing support to gold, the elevated positioning remains one of the few obstacles in the short term,” he said.

Bart Melek, head of commodity strategy at TD Securities, said that while the Brexit vote added uncertainty to the markets, the June Federal Reserve meeting helped to strengthen the bullish sentiment in gold.

Looking ahead, commodity analysts at Citigroup said that they suspect that strong buying Thursday and Friday will push gold’s next length to 300,000, “driven by the addition of new long trades and the clearing out of what few managed money gross shorts remained in mid-June.”

“Gold should also reaffirm its status as a safe-haven in 2H in our view, while a dovish Fed and wider macro concerns that kept gold buoyant pre-Referendum are likely to persist, adding to upside momentum,” they said in a note Monday.

While most of the focus has been on the gold market, silver’s bullish position has also reached historic highs.

The latest CFTC data showed the silver market also saw a significant expansion of its net length last week. The disaggregated COT report showed money-managed speculative gross long positions in Comex silver futures rose by 10,589 contracts to 87,674. At the same time, short positions fell by 3,570 contracts to 12,096. Silver’s net length now stands at 75,578 contracts.

Silver’s net length increased a whopping 23% from the previous week.

Silver prices were a lot less volatile compared to gold prices; during the survey period July Comex silver futures was down 0.5%.

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

Follow @Neils_C