Hedge Funds Sell Gold, Silver As Turmoil Hits Equity Markets
(Kitco News)- The biggest one-day point drop inequity-market history last week wasn’t enough to keep hedge funds intraditional safe-haven assets gold and silver, according to the latest tradedata from the commodity futures trading commission.
Analysts have been warning forseveral weeks that a momentum shift was coming in precious metals. Particularlyin gold, the market has been seen as overvalued after hitting a 1.5-year highlast month.
In a recent interview with KitcoNews, Eugen Weinberg, head of commodity research at Commerzbank, said that hesees a lot of “froth” in gold and prices probably need to consolidate around$1,300 for a while.
However, he added that if equitymarket turmoil picks up, investors will quickly jump into gold as a safe-havenasset.
“There should be reliablesafe-haven demand at $1,300 an ounce,” he said.
Analysts have noted that gold wasnot able to attract significant safe-haven demand last week as the equitymarket correction was seen as a “healthy” move since markets have beensignificantly overvalued.
The Commodity Futures TradingCommission’s disaggregated Commitments of Traders report for the week endingFeb. 6 showed money managers reduced their speculative gross long positions inComex gold futures by 24,220 contracts to 206,377. At the same time, short betsrose by 413 contracts to 23,448. Gold’s net length fell to 182,929 contracts.
Gold’s net length declined almost12% from the previous week. During the survey period, gold prices dropped 0.69%as the market initially held a critical near-term support level.
Analysts at Commerzbank notedthat they expect to see a further decline in gold’s net length as prices fellto a five-week low last week outside of the current commitment of tradersreport.
Commodity analysts at TDSecurities noted that gold market saw strong selling at the start of atumultuous week as investors needed to raise capital to cover equity losses.
“It could be that stable gold isbeing sold to cover margins in a declining equity market, suggesting that it isindeed performing its hedging functionality,” they said.
While gold saw a modest shift inspeculative interest, hedge funds fled out of silver, pushing the market intoneutral territory.
The disaggregated report showedmoney-managed speculative gross long positions in Comex silver futures fell by11,615 contracts to 38,367. At the same time, short positions increased by11,794 contracts to 35,349. Silver’s net length now stands at 3,018 contracts.
Silver’s net length droppedalmost 89% from the previous week. During the survey period, silver prices fell2.8% as critical support at $17 was unable to hold.
Analysts at Commerzbank said theyexpect to see further negative sentiment in the silver market in the near term.
“Because the second price slide only happenedafter the reporting date last week, positioning in silver is meanwhile likelyto be net short,” they said.
By Kitco NewsFor Kitco News
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