Hedge Funds Once Again Bullish On Gold & Silver

(December 24, 2018 - Allen Sykora)

Money managers are holding a net bullish position in gold and silver futures again for the first time in months, based on the most recent report from the Commodity Futures Trading Commission.

The bulk of the shift during the last reporting week, which ran through Dec. 18, was due to fresh buying in gold and short covering in silver.

During the week-long period to Dec. 18 covered by the report, Comex February gold rose $6.40 to $1,253.60 an ounce, while March silver climbed 7.3 cents to $14.701.

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

The disaggregated report shows that money managers were net long by 11,198 futures contracts as of Dec. 18. They had been nearly balanced the week before – net-short by 66 lots as of Dec. 11.

However, there was a massive turnaround in recent weeks after they had been net short by somewhere around 100,000, said Sean Lusk, director of commercial hedging with Walsh Trading. As recently as three weeks ago, the net short stood at 58,390.

During the most recent week, gross longs rose by 10,886 lots, seen as a sign of fresh buying.

Lusk cited two main factors behind the turnaround. One was the sell-off in equities in recent weeks, which left investors looking for so-called safe-haven assets.

The other was a more dovish stance by Federal Reserve policymakers, ever since Fed Chair Jerome Powell said monetary tightening had brought the Federal funds rate close to “neutral.” Markets took this as a hint that policymakers may become less aggressive in future rate hikes, which is supportive for gold.

These accounts flipped to a net-long position of 1,789 futures contracts in silver. They had been net short by 9,154 lots the week before. The number of total shorts fell by 7,125 lots, viewed as short covering, while gross longs rose by 3,818.