Gold Bears Continue To Dominate the Marketplace

October 1, 2018

New York (Oct 1)  Bearish hedge funds continue to dominate the gold market with their short bets as the yellow metal has been unable to hold critical support at $1,200 an ounce, according to the latest data from the Commodity Futures Trading Commission.

The gold market’s bearish speculative positioning has held near historic highs for a month and some analysts warn that it could still take some time before this trade unwinds as U.S. dollar strength dominates the marketplace.

The CFTC's disaggregated Commitments of Traders report, for the week ending Sept. 25, showed money managers increased their speculative gross long positions in Comex gold futures by 609 contracts to 98,513. At the same time, short bets increased by 1,823 contracts to 182,190. Gold’s net-short positioning currently stands at 83,677 contracts.

Gold’s net short increased 1.5% from the previous week. The price action was relatively unchanged during the survey period as traders and investors waited for the much-anticipated and telegraphed Federal Reserve monetary policy decision.

The latest data does not encapsulate the reaction to the Federal Reserve’s decision to raise interest rates by 25 basis points. Traders will have to wait for the end of the week for the next CFTC report; however, some analysts say that gold’s bearish positioning could have risen to new highs as prices dropped below $1,200 an ounce since the Fed meeting.

Commodity analysts at Commerzbank said that they don’t understand gold’s recent price action given growing financial and geopolitical risks in the marketplace.

“The week to 25 September even saw investors expand their net-short positions, leaving them positioned extremely skeptically,” they said. “We believe the weak gold price is due to the complacency shown by investors who are embracing the negative gold trend while ignoring the very obvious risks.”

However, many analysts remain optimistic that gold’s net-short positioning is unsustainable and the market is to bounce back.

In a recent interview with Kitco News, George Milling-Stanley, head of gold investment at State Street Global Advisors, said that while investors are focused on short-term momentum in the U.S. dollar, they are ignoring market risks like the potential for surprise inflation shocks.

“Investors continue to radically underprice risks,” he said. “In the current environment, it is very difficult for markets to look beyond the next few weeks, but that trade would be unwound very quickly if there is a shock to the system.”

Commodity analysts at TD Securities are also optimistic that gold prices can turn around, despite the strong bearish sentiment.

“Recent signs of waning U.S. strength should help specs to look beyond Wednesday's FOMC communique and find the courage to cover and lift prices,” they said.

While gold continues to suffer, silver is finally attracting some investor interest as bears exit the marketplace.

The disaggregated report showed money-managed speculative gross long positions in Comex silver futures rose by 376 contracts to 52,672. At the same time, short positions fell by 3,692 contracts to 95,355. Silver’s net-short positioning dropped to 42,683 contracts, a decline of nearly 9% from the previous week.

This was silver’s biggest decline in net-short positioning in nearly two months.

Ole Hansen, head of commodity strategy at Saxo Bank, said that investors appear to be taking advantage of silver’s underperformance as it recently hit a multi-year low when compared to gold prices. He added that it will be interesting to see if silver can continue to attract bargain hunters and that could be a sign that the precious-metals sector is set for a rebound.


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