(Kitco News) - Large speculators continued adding bearish bets in gold futures during the most reporting period for government data, although the big rise in these so-called short positions over the last month means potential for a bounce in price whenever these traders start to unwind these positions.

The most recent report from the Commodity Futures Trading Commission, released late Monday instead of the usual Friday due to last week’s U.S. Thanksgiving holiday, showed money managers added to their net-short position in gold futures, although at a slower pace than previously. Prices rose on Monday, which observers suggested was the result of buying to exit these trades, commonly referred to as short covering.

The CFTC’s latest data is for the week through Nov. 24. During this period, Comex February gold moved up $4.90 to $1,074.50 an ounce, while March silver inched up a single penny to $14.185.

Ole Hansen, head of commodity strategy at Saxo Bank, said he sees the potential for short covering in the gold market based on speculative hedge fund positioning. He added that the dominant force in the gold market has been Federal Reserve interest-rate expectations, suggesting that investors and traders have almost completely priced in a rate hike in December.

“I think most of the selling in the gold market has been done; those who have needed to liquidate have done so,” he said. “I think we could see a few more shorts exit the market as we get closer to the Fed meeting.

Net long or short positioning in the CFTC data reflect the difference between the total number of bullish and bearish 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 commission issues two reports each week -- a so-called “legacy” report and a “disaggregated” report, started in 2009 and meant to offer more detail.

The most recent report showed that as of Nov. 24, money managers in the disaggregated report were  net short by 16,664 futures contracts, slightly more than a net-short position of 13,923 futures in the prior week. The increase was mostly the result of fresh selling, as total shorts rose by 3,290. Total longs also rose by a smaller 549. Commerzbank described this as a record net-short position for these accounts.

Before the most recent shift to factor in U.S. rate-hike expectations, managed-money accounts had been net long by 116,344 contracts back on Oct. 20. 

Meanwhile, for non-commercial accounts in the legacy report, the net-long position in gold fell to 16,302 futures contracts from 34,399 the week before. The bulk of the decline was long liquidation, as the number of total longs declined by 13,955. There was also some fresh selling, as reflected by a 4,142 increase in gross shorts.

Whenever a large number of fresh shorts, or bears, enter a market, this creates the potential for a short-covering rally as they eventually buy to exit positions. In fact, Commerzbank and MKS (Switzerland) S.A. both suggested this was already a factor on Monday. Commerzbank suggested short-term speculators were “positioned extremely pessimistically on gold.”

Added MKS, “The likelihood of Fed easing later this month of course will still weigh on the metal and contain rallies, but with the ECB (European Central Bank) and NFPs (nonfarm payrolls) later this week combined with the extended short positioning, it is very likely we could see further short covering, at least for the next few sessions.”

In silver, money managers in the disaggregated report cut their net-long position to 9,858 futures contracts from 12,205 the week before. Total shorts rose by 3,350 (fresh selling), exceeding a 1,003 rise in total longs (fresh buying).

Non-commercial net length in silver fell to 19,393 lots from 25,254. This was due to a combination of fresh selling (gross shorts rose by 3,789) and long liquidation (total longs fell by 2,072).

By Allen Sykora and Neils Christensen of Kitco News; asykora@kitco.com andnchristensen@kitco.com