(Kitco News) - Money managers and hedge funds have cut back on short positions in gold after breaking records for two consecutive weeks, according to the latest trade data from the Commodity Futures Trading Commission (CFTC).
For the week ending Dec. 8, the disaggregated Commitment of Traders Report (COTR) showed money-managed speculative gross long positions of Comex gold futures rose by 2,506 contracts to 92,488. At the same time, gross shorts fell by 638 contracts to 109,910. Despite the increase in new long positions, the market remains net short by 17,422 contracts.
The gold market was fairly volatile during the latest survey period with Comex February gold futures only showing total gains of 0.69%, despite hitting a three-week high.
The fall in speculative short positioning was almost universally expected ahead of this week’s Federal Open Market Committee (FOMC) meeting, some analysts said. Markets have priced in about an 80% chance that the U.S. central bank will raise interest rates by 25 basis points.
Many analysts have explained that because expectations ahead of the monetary policy meeting are so high, the gold market is seeing a “sell-the-rumor, buy-the-fact” trade.
However, the short-covering appears to be disappointing for some as it was less than expected. Bart Melek said that the data shows only about 5% of speculative shorts were covered last week.
“Sentiment is still quite bearish for the yellow metal ahead of the first rate rise,” he said.
Analysts at Commerzbank agreed that despite the "slight reduction" in gold's net short positioning, pessimism continues to dominate the gold market.
"Market participants are eagerly waiting to see what happens at the US Federal Reserve’s meeting on Wednesday. As the Fed Fund Futures show, a rate hike is now fully priced in. Market participants are likely to be more interested in hearing the Fed’s plans for its future monetary policy. If the first rate hike happens on Wednesday, one major uncertainty will fall away that has been weighing on the gold price in recent weeks," they said.
Ted Sloup, senior strategist at iiTrader, also said that the report is a little bit disappointing at first glance because the spread between speculative positions remains narrow.
However, he added that the high level of short sellers in the marketplace is still a bullish contrarian indicator.
“Because of positioning, I would be very uncomfortable to short the market at this moment,” he said. “I think the longs just have to be a little patient.”
On the other hand, Sloup also noted that because there is so much negative sentiment in gold, any rally could be seen as an opportunity for investors to re-enter their short trades.
“I don’t think if you are long in this market, you should necessarily be looking for that break out trade,” he said. “If you are a long investors you should be nimble and take your profits quick.”
While the gold market managed to attract some investor interest, funds were exiting their silver positions.
The disaggregated COTR showed money-managed speculative gross long positions of Comex silver futures fell by 1,810 contracts to 52,472. At the same time, short contracts rose by 359 contracts to 43,201. The silver market’s net length now stands at 9,271 contracts.
During the survey period Comex March silver futures showed a total gain of 0.39%, as prices hit a four-week high.
By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow me on Twitter @neils_C
