Money Managers Pile Into Bullish Silver Positions

(July 29, 2019 - Allen Sykora)

Fund managers sharply increased their bullish positioning in silver futures, while largely maintaining the status quo in gold, during the most recent reporting week for data compiled by the Commodity Futures Trading Commission, analysts said.

During the week-long period to July 23 covered by the data, Comex August gold rose $10.50 to $1,421.70 an ounce, while September silver surged 79.8 cents to $16.476.

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 disaggregated report shows that money managers’ net long in silver futures jumped to 51,656 contracts from 27,764 the week before. The net length is now more than triple the 15,527 contracts from two weeks ago.

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In recent months, speculators had piled into bullish gold positions. Now, they are warming up to silver as well. There were roughly equal amounts of fresh buying (11,799 rise in total longs) and short covering (12,093 decline in gross shorts).

“Silver made a breakout of a sideways pattern,” said Phil Flynn, senior market analyst with at Price Futures Group.

Further, as was the case in gold, the metal began to draw buying on expectations of lower interest rates in the U.S., Flynn continued. “People are going back to silver as an alternative investment.”

TD Securities said speculators “continued to load up on fresh long positions and heavily cover shorts” in both silver and platinum on news that a U.S. negotiating team is headed to China for face-to-face talks this week.

“But, with the CTA [Commodity Trading Adviser] bid running its course and a trade deal still elusive, the industrial precious metals could be set to cool off somewhat,” TDS added.

Meanwhile, the disaggregated report showed that money managers ever so slightly trimmed their net long in gold futures contracts to 178,173 futures contracts from 180,059 the week before. A modest amount of long liquidation (decline of 3,169 total longs) slightly outpaced a modest amount of short covering (gross shorts fell by 1,283 lots).

Gold speculative positioning barely changed during the week, as the market remained locked in a range awaiting the outcome of this week’s meeting of the Federal Open Market Committee, said a research note from TDS.

“Given the exaggerated long positioning, and the prospects of a 25bp [25-basis-point] cut disappointing a portion of the market, it is quite plausible that specs could liquidate some of the recently accumulated length in the aftermath of the meeting,” TDS said.