Gold Bears Continue To Dominate the Marketplace
(Kitco News) - Bearish hedge funds continue todominate the gold market with their short bets as the yellow metal has beenunable to hold critical support at $1,200 an ounce, according to the latestdata from the Commodity Futures Trading Commission.
The gold market’s bearishspeculative positioning has held near historic highs for a month and someanalysts warn that it could still take some time before this trade unwinds asU.S. dollar strength dominates the marketplace.
The CFTC's disaggregatedCommitments of Traders report, for the week ending Sept. 25, showed moneymanagers increased their speculative gross long positions in Comex gold futuresby 609 contracts to 98,513. At the same time, short bets increased by 1,823contracts to 182,190. Gold’s net-short positioning currently stands at 83,677contracts.
Gold’s net short increased 1.5%from the previous week. The price action was relatively unchanged during thesurvey period as traders and investors waited for the much-anticipated andtelegraphed Federal Reserve monetary policy decision.
The latest data does notencapsulate the reaction to the Federal Reserve’s decision to raise interestrates by 25 basis points. Traders will have to wait for the end of the week forthe next CFTC report; however, some analysts say that gold’s bearishpositioning could have risen to new highs as prices dropped below $1,200 anounce since the Fed meeting.
Commodity analysts at Commerzbanksaid that they don’t understand gold’s recent price action given growingfinancial and geopolitical risks in the marketplace.
“The week to 25 September evensaw investors expand their net-short positions, leaving them positionedextremely skeptically,” they said. “We believe the weak gold price is due tothe complacency shown by investors who are embracing the negative gold trendwhile ignoring the very obvious risks.”
However, many analysts remainoptimistic that gold’s net-short positioning is unsustainable and the market isto bounce back.
In a recent interview with KitcoNews, George Milling-Stanley, head of gold investment at State Street GlobalAdvisors, said that while investors are focused on short-term momentum in theU.S. dollar, they are ignoring market risks like the potential for surpriseinflation shocks.
“Investors continue to radicallyunderprice risks,” he said. “In the current environment, it is very difficultfor markets to look beyond the next few weeks, but that trade would be unwoundvery quickly if there is a shock to the system.”
Commodity analysts at TDSecurities are also optimistic that gold prices can turn around, despite thestrong bearish sentiment.
“Recent signs of waning U.S.strength should help specs to look beyond Wednesday's FOMC communique and findthe courage to cover and lift prices,” they said.
While gold continues to suffer,silver is finally attracting some investor interest as bears exit themarketplace.
The disaggregated report showedmoney-managed speculative gross long positions in Comex silver futures rose by376 contracts to 52,672. At the same time, short positions fell by 3,692contracts to 95,355. Silver’s net-short positioning dropped to 42,683contracts, a decline of nearly 9% from the previous week.
This was silver’s biggest declinein net-short positioning in nearly two months.
Ole Hansen, head of commoditystrategy at Saxo Bank, said that investors appear to be taking advantage ofsilver’s underperformance as it recently hit a multi-year low when compared togold prices. He added that it will be interesting to see if silver can continueto attract bargain hunters and that could be a sign that the precious-metalssector is set for a rebound.
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.