Monday July 22, 2013 10:43 AM
(Kitco News) - Analysts have warned for some time that the large build-up of short, or bearish positions, in gold among speculators meant potential for short covering-and that's just what showed up in the most recent weekly data from the Commodity Futures Trading Commission.
The gold net-long position of the large non-commercial accounts, commonly referred to as the funds, jumped 48% and rose for the first time since the start of June as traders were covering, or exiting, short positions.
And, with prices rising further since the cut-off for the last CFTC data, there is potential for the next report to show still more short covering.
Short covering also occurred in all of the other U.S.-traded metals during the latest reporting week for CFTC data. The net longs rose for silver and the platinum group metals, while the net short position fell significantly for copper. The most recent data are for the week through July 16.
All of the metals rose during the week covered by the report. Comex gold rose to $44.50 to $1,290.40 an ounce as of July 16, while September silver climbed 79.7 cents to $19.935. October platinum rose $56.50 to $1,425.10 an ounce, while September palladium climbed $38.25 to $735.60. Comex September copper moved up 12.2 cents to $3.1865 a pound.
Net long or short positioning in the CFTC data reflect the difference between the total number of bullish and bearish 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 CFTC issues two reports - a "legacy" report in a format that has been used for years, and a "disaggregated" format that began in 2009 and is meant to offer more detail.
In the case of gold, non-commercials in the legacy report bumped up their net long to 41,132 lots for futures and options combined from 27,845 the prior week. This occurred even though the number of total longs, or bullish bets, declined by 1,424. This was more than offset by short covering as the number of bearish, or short positions, fell far more by 14,711 lots.
There was a similar story for money managers in the disaggregated report, as the net length rose to 55,535 lots for futures and options combined from 35,691 the previous week. Nearly all of this was short covering, as the number of total shorts plummeted by 19,145 contracts.
TD Securities described the week as one with a "gold rally on the tapering back of 'tapering' expectations." The firm was referring to the market's continual effort to try to gauge just when the Federal Reserve might start scaling back its bond-buying program known as quantitative easing.
Standard Bank added that "we suspect the short covering came on the back of the strong physical demand seen out of China since the start of June."
Gold gross speculative short positions fell to 17 million ounces from the all-time high of 17.9 million a week earlier, said HSBC. "Further short covering for gold may provide a near-term boost for prices, in our view."
August gold surged to one-month high of $1,328.20 an ounce as of 10:24 a.m. EDT Monday, with traders citing stop-loss buying and short covering when the market broke up through resistance around the $1,300 area. Previously, the contract topped $1,290 in five of seven trading sessions but had been unable to get through $1,300.
"Silver specs followed in the footsteps of gold, cutting short positions," TDS said.
The CFTC data showed that non-commercials in the legacy report upped their silver net-long to 7,105 lots from 5,807 as the number of shorts declined by 1,199. Money managers in the disaggregated report hiked their net-long to 4,830, as the amount of short covering (decline of 373 gross shorts) outpaced the long liquidation (decline of 248 total longs).
PGM Net Length Also Lifted By Short Covering
Net length in platinum group metals also rose mostly on short covering.
The non-commercials upped their platinum net long to 23,666 lots for futures and options combined from 22,232, as the number of total shorts fell by 1,607. Money managers hiked their net long to 18,509 from 17,229 as total shorts fell by 1,707
In palladium, non-commercials are now net long by 23,048 lots compared to 20,684 the prior week as gross shorts fell by 1,607 and longs rose by 757. Money managers are net long 21,831, up from 20,096, as total shorts fell by 1,120 and total longs rose by 615.
Meanwhile, large speculators trimmed their net-short positions in both copper reports.
The non-commercials are now net-short by 22,220, down from 27,915 the prior week. The number of gross shorts fell by 10,543 (short covering), far exceeding the 4,849 decline in total longs (long liquidation). Money managers cut their net-short to 15,673 from 26,284 as the number of gross shorts fell by 10,247.
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By Allen Sykora of Kitco News firstname.lastname@example.org
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.