Monday August 14, 2017 11:25
(Kitco News) - As expected, hedge funds bearish on gold and silver felt the pinch once again last week, as they were squeezed out while the market remained resilient in the face of continued strength in the labor market, according to analysts.
The latest trade data from the Commodity Futures Trading Commission showed that bullish sentiment in gold rose for the fourth consecutive week as prices hovered near two-month highs. The data revealed that bullish sentiment is at its highest level in two months.
The Disaggregated Commitments of Traders report for the week ending August 8, showed money managers increased their speculative gross long positions in Comex gold futures by 6,746 contracts to 164,828. At the same time, short bets fell by 10,781 contracts to 28,843. Gold’s net length now stands at 135,985 contracts.
Ole Hansen, head of commodity strategy at Saxo Bank noted that in the past three weeks hedge funds have shed 71,000 short contracts, which is the equivalent of 7.1 million ounces of gold.
Gold’s net length increased almost 15% from the previous week; however during the survey period prices for the yellow metal declined more than 1%. The price drop came after economic data showed solid strength in the labor market after the U.S. Economy created 209,000 jobs in July, beating market expectations.
Although there was some profit taking in the gold markets, analysts remained constructive on gold as safe-haven demand started to pick up due to rising tensions between the U.S. and North Korea.
“Despite an impressive jobs report last Friday, which saw the metals selloff and some longs liquidate, spec positioning still increased as the recent flare up in tensions with North Korea saw more shorts covering,” said Bart Melek, head of commodity strategy at TD Securities.
“It is likely net positioning will continue to grow moving forward as government shutdown discussions and North Korea tensions keep investors interested, while disappointing data such as a the CPI print for July suggest the Fed will have little impetus to lift rates as much as it had signaled, provide a positive environment for the precious metals.”
Looking long term, Joni Teves, precious metals strategist at UBS, said that she expects gold to continue to grow as funds diversify into more defensive portfolio strategies.
“We think that allocations to gold are currently low relative to historical levels, which suggests that there's room for exposures to grow up ahead. Investors continue to recognise gold's value in a diversified portfolio,” she said in a recent report. “Interest has been evident, especially in recent months, from more strategic players to slowly build positions in gold, taking advantage of price fluctuation.”
Bearish silver investors also fled the marketplace last week as bullish positioning increased for the third consecutive week.
The disaggregated report showed money-managed speculative gross long positions in Comex silver futures fell by only 5 contracts to 66,456. At the same time, short positions fell by 4,491 contracts to 38,936. The silver market’s net length now stands at 27,520.
Silver’s bullish positioning increased more than 19% from the previous week, but prices dropped more than 2% during the survey period.
By Neils Christensen
For Kitco News