Hedge Funds Take Profits In Gold Ahead Of Expected Fed Rate Hike

Neils Christensen

Monday March 13, 2017 13:47

(Kitco News) -Hedge funds have been quick to take profits in gold and silver ahead of the March 15 Federal Reserve monetary policy decision, according to the latest trade data from the Commodity Futures Trading Commission.

The disaggregated Commitments of Traders report for the week ending March 7, showed money managers reduced their speculative gross long positions in Comex gold futures by 16,160 contracts to 150,277. At the same time, short bets rose by 7,839 contracts to 60,030. Gold’s net length now stands at 90,247, contracts, down 21% from the previous week.

The sharp drop in speculative bullish positioning caused gold futures to decline 3% during the survey period.

“Weakening prices along with increasing certainties that the Fed will restart the tightening cycle in March convinced specs to aggressively cut long gold exposure and build new short positions,” said Bart Melek, head of commodity strategy at TD Securities.

For the last two weeks, expectations have been growing for a Fed rate hike. Currently CME 30-Day Fed Fund futures are pricing in a 95% chance of a 25 basis-point hike later this week.

Melek added that a hawkish tone from the Federal Reserve Wednesday could prompt funds to further liquidate their long gold positions, which would push prices decisively below $1,200 an ounce.

Ole Hansen, head of commodity strategy at Saxo Bank, said that he also sees technical reasons for funds exiting their bullish gold. “The rejection at the 200-day moving average and sell signal on the weekly charts did provide additional signals to reduce exposure ahead of March 15.

While there could be further liquidation in the gold market, sentiment among some analysts is that funds will start buying gold after the Fed’s monetary policy meeting.

Hedge funds started taking profits in silver as the market saw its first decline in net length so far this year.

The disaggregated report showed money-managed speculative gross long positions in Comex silver futures rose by 1,546 contracts to 94,487. At the same time, short positions fell by 102 contracts to 11,086. Silver’s net length now stands at 83,401 contracts, down almost 2% from the previous week.

During the survey period, March silver futures dropped 5% as prices fell below $18 an ounce. Analysts said that silver’s net length has continued to shrink as prices have continued to drop.