Risk sentiment in financial markets is shifting and hedge funds are taking profits after gold’s summer rally and putting it back to work in equity markets.
The latest data from the Commodity Futures Trading Commission (CFTC) shows that although hedges funds are reducing their bullish bets in gold, they are not outright bearish on the precious metal.
The CFTC's disaggregated Commitments of Traders report for the week ending Nov. 12 showed money managers reduced their speculative gross long positions in Comex gold futures by 23,735 contracts to 209,432. At the same time, short bets also fell by 1,929 contracts to 33,991. Gold's net-long positioning currently stands at 175,441 contracts, down around 11% compared to the previous week.
The long liquidation didn’t come as much of a surprise as gold prices dropped to a three-month low and tested critical support around $1,450 an ounce. Speculative interest in gold is at its lowest point since late June.
Analysts at TD Securities provided a long list of reasons why investors are turning away from gold, including shifting interest rate expectations as the Federal Reserve signals that it will hold interest rates steady for the foreseeable future; improving sentiment over trade talks between the U.S. and China; and all-time highs in equity markets.
“We continue to see a balance of risks that has shifted out of favor for the bulls in the near-term — our dry-powder positioning analysis suggests that the bullish gold narrative may be running out of steam, as the number of traders long is decreasing, but the average trader still holds an outsized position, which suggests the pain trade remains to the downside,” the analysts said.
Although speculative interest has been waning in the gold space, some analysts have said that there is still a case to be made that investors will hold a core position to hedge against financial market uncertainty.
Although the gold market is holding up relatively well, investors appear to be turning outright bearish on silver as the price once again underperforms within the precious metals space.
The disaggregated report showed money-managed speculative gross long positions in Comex silver futures fell by 6,020 contracts to 72,660. At the same time, short positions rose by 3,541 contracts to 41,083. Silver's net length currently stands at 31,577 contracts, down more than 20% from the previous week.
The selling pressure came as silver prices also saw a three-month low as the market was unable to hold above $17 an ounce.
Some analyst have noted that although investor sentiment has improved, fears of a global recession haven’t completely disappeared. The expectation of lower industrial demand is weighing on silver prices. Nearly half of the demand for silver comes from industrial use.
Courtesy - Kitco News