Hedge Funds Cover Gold Shorts At Fastest Pace In 2016 On Election Jitters

By Kitco News
Monday November 07, 2016 12:41

(Kitco News) - For the second consecutive week, hedge funds waded back into gold with the latest data from the Commodity Futures Trading Commission showing that short covering was the biggest market driver.

According to the latest trading numbers, last week, money managers slashed their short gold bets at their fastest pace this year.

The disaggregated Commitments of Trader report (COT), for the week ending Nov. 1, showed money managers increased their speculative gross long positions in Comex gold futures by 4,576 contracts to 203,670. At the same time, short bets fell by 17,781 contracts to 37,403. Gold’s net length now stands at 166,267 contracts.

Gold’s net length increased15%, compared to the previous week; however, the speculative positioning is still down more than 39% from its all-time highs seen early this summer. During the survey period, gold rose 1% as prices pushed towards key resistance at $1,300 an ounce.

According to some analysts, hedge funds were quick to exit their short positions in reaction to growing uncertainty surrounding the U.S. election as polls between Democratic candidate Hillary Clinton and Republican candidate Donald Trump narrowed sharply.

Analysts have been extremely bullish on gold in the event of a Trump Victory, saying that immediate reaction could drive prices to $1,400 an ounce, adding that it would bring about economic uncertainty because of Trump’s lack of political experience and the risk that his policies could spark global trade and currency wars.

George Gero, managing director at RBC Wealth Management, said that investors need to look past the gold market’s election volatility. He added he is expecting growing inflation pressures to attract new buyers to the market.

Short-covering was also a significant factor for the silver market. The disaggregated COT report showed money-managed speculative gross long positions in Comex silver futures grew by only 777 contracts to 66,733. At the same time, short positions fell by 8,489 contracts to 19,066. Silver’s net length now stands at 47,667 contracts.

Silver’s net length increased by more than 24%; however, speculative positioning is down more than 50% from its all-time highs seen earlier this year.

During the survey period, silver prices rose 4.5% as prices briefly pushed above $18.50 an ounce.