Hedge Funds Caught Off Guard As They Up Gold, Silver Bullish Bets Ahead Of U.S. Election

By Kitco News
Tuesday November 15, 2016 10:31

(Kitco News) - Hedge funds were caught on the wrong foot ahead of the U.S. presidential election, according to some commodity analysts, as the latest trade data from the Commodity Futures Trading Commissions showed an expansion of bullish gold bets just before prices fell sharply.

The disaggregated Commitments of Trader report (COT), for the week ending Nov. 8, showed money managers increased their speculative gross long positions in Comex gold futures by 8,000 contracts to 211,670. At the same time, short bets rose by only 630 contracts to 38,033. Gold’s net length now stands at 173,637 contracts.

The latest CFTC data were released Monday evening as the U.S. government was closed Friday, in recognition of Veterans Day.

Gold prices dropped more than 1% during the survey period, despite the buying interest that pushed the market’s net length to its highest point in five weeks.

This was the third consecutive week that hedge funds increased their bullish positioning in the gold market. Gold’s net length increased more than 4% from the previous week. However, most analysts note that the data is backward looking as it doesn’t include the massive sell-off in the days following Donald Trump’s surprise election victory.

Gold prices fell more than 9% from last week’s election-night high to Monday’s nearly six-month low. Commodity analysts at Commerzbank said they expect many of the previous bullish speculators have now “jumped ship.”

Analysts will have to wait until Friday to see how much damage was done to gold’s net length in the aftermath of the U.S. election.

With gold falling through key support at $1,250 an ounce, some analysts are expecting hedge funds to continue to liquidate their long positons and increase their short bets.

Bart Melek, head of commodity strategy at TD Securities, said that in the near term he couldn’t rule out prices dropping below $1,200 an ounce.

Money managers were also caught off guard in the silver market as they added new bullish bets and reduced their short exposure in the metal. The disaggregated COT report showed money-managed speculative gross long positions in Comex silver futures grew by 5,256 contracts to 71,989. At the same time, short positions fell by 3,214 contracts to 15,852. Silver’s net length now stands 56,137 at contracts.

Silver’s net length increased by more than 15% from the previous week. During the survey period, silver prices were relatively flat, falling 0.1%.

Following the U.S. election results, silver has lost more than 12% from its Nov. 9 high to a nearly six-month low Monday.

However, some commodity analysts are slightly more optimistic for silver as it is also seen as an industrial metal and could benefit from an improving U.S. economy.