Hedge Funds Take Profits in Gold And Silver; More Selling To Come – Analysts

Neils Christensen  

Monday May 08, 2017 11:43

 (Kitco News) - Six weeks of continuous buying, which recently pushed gold prices to five-month highs, finally prompted hedge funds to take profits in the yellow metal, according to the latest trade data from the Commodity Futures Trading Condition.

The disaggregated Commitments of Traders report for the week ending May 2 showed money managers decreased their speculative gross long positions in Comex gold futures by 12,063 contracts to 195,331. At the same time, short bets increased by 4,706 contracts to 51,720. Gold’s net length now stands at 143,611, contracts.

Gold’s net length dropped more than 10% from the previous week. The hedge-fund liquidation caused gold prices to fall almost 1% during the survey period.

“Despite the fact that U.S. Q1 economic data was weaker-than-expected, specs decided that more rate hikes are coming this year. As such, the expected higher USD [U.S. dollar] opportunity costs drove capital out of the precious-metals space, which was assisted by weaker price signals,” said Bart Melek, head of commodity strategy at TD Securities.

Looking ahead, with markets pricing in an 83% chance of a move in June, some analyst are warning that there could be further selling in the gold market in the near term.

“After six weeks of buying, I don’t think one week of selling will be enough to end the profit taking we are starting to see,” said Ole Hansen, head of commodity strategy at Saxo Bank, in an interview ahead of the release of the data.

Hansen added that technical weakness could eventually push prices to strong psychological support at $1,200 an ounce. He added that selling pressure could pick up as he expects to see an increase in short-selling if prices break initial support around $1,225 an ounce.

Picking up selling momentum for the second consecutive week, hedge funds significantly reduced their bullish exposure in silver.

The disaggregated report showed money-managed speculative gross long positions in Comex silver futures fell by 21,306 contracts to 78,203. At the same time, short positions rose by 4,529 contracts to 23,827. Silver’s net length now stands at 54,379 contracts.

Silver’s net length dropped 32% from the previous week. The strong selling pressure caused silver fall below $17 an ounce, with prices declining 6% during the survey period.

Silver’s net length is down more than 41% from its record highs seen four weeks ago.