(Kitco News) - Hedge funds and money managers fled the gold market last week, exiting their speculative long positions and pushing the market back into record short positioning, according to the latest data from the Commodity Futures Trading Commission.
For the week ending Dec. 15, the disaggregated Commitment of Traders Report (COTR) showed money-managed speculative gross long positions of Comex gold futures fell by 8,871 contracts to 83,617. At the same time, gross shorts rose slightly by 956 contracts to 110,836. The latest data shows the gold market is net short by 27,219 contracts. This is the third time in four weeks that net short positioning has hit record levels.
During the survey period, the long liquidation from hedge funds helped to push Comex February gold futures down more than 1%. The latest survey data does not incorporate the price action following the much-anticipated Federal Open Market Committee (FOMC) meeting, which saw the central bank raise interest rates for the first time in almost 10 years.
Ole Hansen, head of commodity strategy at Saxo Bank, said he is not surprised that hedge funds exited their long positions ahead of one of the biggest central bank meetings in recent years. He added that the recent gains in gold, which saw prices push to a three-week high created enough incentive to take profits.
Hansen added that the selling pressure could also be related to year-end positioning.
However, the fact that short speculative positioning remains at historical levels could be a positive for the market.
“Getting the market back to more neutral stance would lead to a $20 to $50 move in prices and I think that is getting a lot of shorts nervous,” Hansen said.
Ted Sloup, senior market strategist at iiTrader, said that although he can’t rule out lower prices in the medium term, the speculative positioning continues to favor higher prices, as a contrarian trade.
“Although prices are struggling to hold gains, I’m still trusting the sentiment in the COT,” he said.
He noted that even though sentiment is extremely negative in the gold market, prices have held the early December multi-year intra-day lows at $1045.40 an ounce. Even after the Fed announced its highly-anticipated rate hike, the short-sellers were not able to push prices to a new low
“As much as the market has disappointed the bulls; I think the latest price action is disappointing for the bears as well,” he said. “I think we could see some of them give up in the short-term.”
The silver market was also not able to attract any positive investor sentiment as hedge funds not only fled their long positons but piled on the short bets.
The disaggregated COTR showed money-managed speculative gross long positions of Comex silver futures fell by 1,892 contracts to 50,580. At the same time, short contracts rose by 4,781 contracts to 47,982. The silver market’s net length now stands at 2,598 contracts. According to the data, silver’s net positioning decline by almost 72% from the previous week.
During the survey period, Comex March silver futures saw significant weakness, falling more than 2.5%, and dropping below $14 an ounce. The last day of the survey period saw silver fall to a multi-year low.
By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow me on Twitter @neils_C
