Hedge funds exit their bearish bets ahead of Jackson Hole

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(Kitco News) – According to some analysts, the gold market could have a solid floor around $1,700 an ounce as the latest trade data from the Commodity Futures Trading Commission showed that the precious metals flash crash provided some investors the opportunity to cover their bearish bets and buy at a discount.


Commodity analysts at Société Générale noted that short-covered in the gold market was the eighth highest on record going back to June 2006.


“Mixed US economic data supported gold spot prices,” the analysts said in a report Monday.


Analysts at TD Securities also noted growing concerns that the global economy is slowing due to the spreading COVID-19 Delta variant and causing some investors to revaluate their gold positions.


“At the same time, growing expectations that real rates will continue very much in accommodative territory, despite the oft-discussed Fed taper announcement later in the year, prompted money managers to also grow long exposure to capture the upside,” the analysts said. “Finally, enthusiasm toward gold has grown due to doubts that the US central bank will take convincing actions to reduce its asset purchase program as the economy faces pressure from the fourth Covid wave.”


The CFTC disaggregated Commitments of Traders report for the week ending Aug. 17 showed money managers increased their speculative gross long positions in Comex gold futures by 5,380 contracts to 117,272. At the same time, short positions fell by 18,295 contracts to 58,194.


Gold’s net length now stands at 59,078 contracts, up 66% from the previous week. However, the speculative positioning still has some ways to go before recovering from the flash crash seen earlier in the month. Although bullish sentiment has improved the price was unable to push back above $1,800 an ounce during the survey period.


While investors see growing potential for gold, increasing concerns over the health of the global economy are keeping bearish pressure on silver.


The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures rose by 1,596 contracts to 48,227. At the same time, short positions jumped by 3,581 contracts to 38,472.


Silver’s net length stands at 9,755 contracts, down nearly 17% compared to the previous week. Silver prices were relatively volatile during the survey period, trading between $23.50 to just below $24.00 an ounce.


Although silver is struggling to attract investor attention and capital, analysts at SocGen said that the precious metal appears to be oversold and is ripe for short covering.


Growing concerns regarding economic growth can also be seen in the copper market as hedge funds continue to expand their bearing speculative positioning.


Copper’s disaggregated report showed money-managed speculative gross long positions in Comex high-grade copper futures fell by 4,758 contracts to 57,717. At the same time, short positions rose by 7,386 contracts to 38,759.


Copper’s net length fell to 18,985 contracts, falling nearly 39% from the previous week. During the survey period, the copper price tested new support at $4.20 a pound.


“With Chinese tailwinds morphing into headwinds, global benchmark prices for copper are trading below the threshold needed to catalyze CTA liquidations, adding to downside flow, but the impact on price action has largely remained contained for the time being as metals supply risks keep prices supported,” said analysts at TD Securities.



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.


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