Silver Still Needs To Do More To Shift Bearish Sentiment - Analysts

Monday July 24, 2017 11:03
(Kitco News) - While hedge funds are feeling a little bit more optimistic on gold, more work needs to be done in the silver market, according to some analysts, since the market continues to attract short selling.

The latest data from the Commodity Futures Trading Commission showed that hedge funds remain net short in the silver futures for the second consecutive week as gross short positions hit a record high.

The disaggregated Commitments of Traders report for the week ending July 18 showed money managers increased their speculative gross long positions in Comex silver futures by 3,130 contracts to 58,827. However this was slightly less than an increase in short bets by 3,855 contracts to 65,913. Silver’s net short positioning now stands at 7,086 contracts.

Silver’s bearish positioning increased by 11% from the previous week. The bearish sentiment among speculative funds did not have much impact on prices, which rose 3% during the survey period, retaking the key psychological level at $16 an ounce.

Sam Laughlin, senior trader at MKS (Switzerland) S.A., noted in a report Monday that further gains in the silver prices are expected to put further pressure on these short positions, creating the environment for a short-covering bounce.

“The current large short positioning is likely weighing upon the metal, however, a sustained move through $16.50 to target $16.69 should drive short liquidation to support further gains.”

September Silver futures last traded at $16.425 an ounce, relatively flat on the day.

While sentiment in silver remains bearish, it has once again turned bullish in the gold market, with hedge funds ending five weeks of continuous selling.

The disaggregated report showed money-managed speculative gross long positions in Comex gold futures rose by 3,409 contracts to 127,028. At the same time, short positions fell by 2,282 contracts to 98,115. Gold’s net length now stands at 28,913 contracts.

Gold’s net length increased 24.5% from the previous week. The renewed bullish sentiment has helped the market push to a two-week high, with prices rising more than 2% during the survey period.

Bart Melek, head of commodity strategy at TD Securities, noted that gold is benefiting from disappointing economic data and weak inflationary pressures, which is shifting expectations for interest-rate hikes, weighing down the U.S. dollar.

“With the uncertainty relating to future hikes, doubts regarding any fiscal stimulus and a looming deadline for a government shutdown along the way, we expect that gold will keep investor interest and silver may be susceptible to a significant bout of short covering in the second half of the year,” he said.

Analysts at Commerzbank said that they also expect to see further improvement in the gold market as the metal benefits from a weaker U.S. dollar, which has recently fallen to a 13-month low.

Gold is starting the new trading week near a 4-week high; August gold last trading at $1,254.90 an ounce, unchanged on the day.

By Neils Christensen
For Kitco News