Money managers trim bullish positioning in gold right before prices start to rise

May 18, 2020

New York (May 18)  Money managers trimmed their net-bullish position in gold futures during the most recent reporting week for data compiled by the Commodity Futures Trading Commission (CFTC), which was shortly before a steady price rise that on Monday carried the metal to a one-month high.

During the week to May 12 covered by the last CFTC report, Comex June gold slipped by $3.80 to $1,706.80 an ounce, while July silver rose by 59.9 cents to $15.709.

However, the next report may well show a greater net-long position among these accounts since gold has posted a higher daily high and a higher low each day since the May 12 cut-off for the last data. As of 8:19 a.m. EDT on Monday, June gold was up $2.20 for the day to $1,758.50 and earlier traded as high as $1,775.80, its most muscular level since April 14. July silver was up 54 cents to $17.61 and peaked at $17.985, its strongest level since Feb. 27.

“Gold [is] moving within hailing distance of $1,800; silver towards $18,” said George Gero, managing director with RBC Wealth Management.

He cited a number of factors helping gold, including “benign” interest rates, looming large government deficits and longer-term inflation, with higher prices in supermarkets. Gero also pointed out that exchange-traded-fund holdings of the metal are continuing to rise.

Net long or short positioning in CFTC data reflect the difference between the total number of bullish (long) and bearish (short) 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.

The CFTC’s “disaggregated” report showed that money managers’ net-long position in gold fell to 122,217 futures contracts as of May 12 from 133,241 the week before. The decline was due to fresh selling, as the number of gross shorts rose by 12,713 lots and far outpaced the increase of 1,689 total bullish positions.

“Somewhat higher yields across the curve, a firm USD [U.S. dollar] and a fairly bid equity market prompted money managers to aggressively grow their short gold positions, reducing their net-long gold exposure,” said a research note from TD Securities. “There was a belief that somewhat higher rates and a strong USD would continue to pull prices lower for the rest of the week, particularly since Fed Chair Jerome Powell continued to reject the idea that policy rates should move below zero.

“But while net positioning tilted convincingly towards the shorts, some money manager did take long bets amid expectations that debt would grow massively and currencies would devalue over time. Indeed, extremely weak U.S. data has helped prices to move to new highs as many expected deeper and deeper deficits and new monetary and fiscal stimulus.”

Meanwhile, money managers’ net-long position in silver rose to 13,943 futures contracts from 10,467 in the prior week. The increase was mainly the result of apparent short covering, as the number of gross shorts declined by 2,751 contracts. There was also fresh buying, as total longs rose by 725 lots.


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