Monday May 22, 2017 11:02
(Kitco News) - Large speculators slashed their bullish positioning in gold and silver futures during the most recent reporting week for data compiled by the Commodity Futures Trading Commission.
In an unusual twist, however, gold rose even though money managers in the futures market cut their bullish stance, with Commerzbank analysts attributing the price gains to good physical demand. Meanwhile, other analysts pointed out that gold has rallied sharply starting last Wednesday, which was the day after the cutoff for the CFTC data. TD Securities pointed out that long-liquidation selling in gold ground to a halt, with prices rising amid a pickup in U.S. political turmoil
The CFTC data cover the week to May 16. During this period, Comex June gold rose $20.30 to $1,236.40 an ounce, while July silver climbed 68 cents to $16.747.
After this, prices continued to rally, helped last week by news reports that U.S. President Donald Trump allegedly asked former FBI director James Comey to end an investigation into former White House national security adviser Michael Flynn’s ties to Russia. As of 10:44 a.m. EDT Monday, June gold was at $1,258.50 an ounce and July silver was at $17.08.
Net long or short positioning in the CFTC data reflect the difference between the total number of bullish and bearish contracts. Traders monitor the data to gauge the general mood of speculators, although excessively high or low numbers are viewed by many as signs of overbought or oversold markets that may be ripe for price corrections.
“As the CFTC’s statistics on the positioning of speculative market participants show, this group of investors has withdrawn considerably further from gold and silver of late,” Commerzbank said, noting the decline in the gold net-long was the third straight weekly fall.
“The withdrawal of speculative financial investors has no longer had any negative impact on the gold price of late, however,” the bank continued. “On the contrary, the price actually climbed…in the last reporting week, which points to robust physical demand.”
The so-called disaggregated report shows that money managers cut their net-long position to 65,868 futures contracts as of May 16, compared to 95,962 the prior week. This occurred in large part due to long liquidation, as the number of gross long (bullish) positions declined by 19,325 to 132,094. There was also fresh selling, as reflected by an increase of 10,769 fresh short, or bearish, positions to 66,226. Saxo Bank said bullish bets on gold hit an eight-week low.
“Money managers took profits after weak economic data in the U.S. saw the yellow metal bounce back into the $1,240/oz range, while others took that as an opportunity to get short in expectation of a coming rate hike in June,” said TD Securities in its analysis. “But after the latest political turmoil increased risks that President Trump could be impeached and may not deliver on his fiscal agenda, gold rallied to as high as $1265.08/oz and likely put an end to the liquidations as investors may not want to abandon gold just yet.”
Commerzbank pointed out that the 46% fall in silver net length was the fifth weekly decline in a row, leaving the net long position at the lowest level since the beginning of 2016. The net-long position for this metal was still at a record high of nearly 100,000 contracts just five weeks ago, the bank said.
“Roughly 12,550 tonnes of silver were thus sold via the futures market during this time,” the bank said. “In other words, the sharp fall in the silver price of almost $2.50 per troy ounce [in the last five weeks] appears to have been driven primarily by speculation. In light of this, the sizeable ETF inflows of late appear little more than a drop in the ocean. ETF holdings were increased by nearly 380 tonnes last week and by a good 740 tonnes since the beginning of the month.”
The net-long silver position of money managers declined to 17,847 lots as of May 16 from 33,101 the prior week. The decline was due to fresh selling, as the number of gross short positions rose by 16,158 to 51,020. This outpaced a 904-lot increase in gross longs to 68,867.
By Allen Sykora
For Kitco News