(Kitco News) - Short covering lifted large speculators’ Comex gold futures and options holdings in the latest Commodity Futures Trading Commission weekly data, after a modest increase in gold prices in the timeframe covered by the report, which is for the week ending Dec. 2.
Since funds arrested the slide in their net-long holdings in the past few reports, the rise in net-long holdings have come mostly on the back of short covering, rather than a big build of new bullish positions. Short covering is when market participants buy back previously sold positions and exit the trade.
Fund managers added to their bullish positions in silver, but had mixed action in the platinum group metals. These traders added to their bearishness in copper as they increased net-short holdings. The data includes information from both the CFTC’s disaggregated report and legacy reports.
Metals prices were mostly weaker during the time period covered by the latest CFTC report. Comex February gold managed to buck the weaker price trend, rising $1.60 an ounce to $1,199.40. March silver fell 15.50 cents to $16.456. January platinum fell $7 to $1,217.50 an ounce. March palladium was the only other gainer in the metals complex, rising $6.90 to $803.75. Comex March copper fell, dropping 8.6 cents to $2.8915 a pound.
Managed-money traders’ net-long holdings rose to 79,497 contracts, the highest since Aug. 26, as they added 3,692 gross longs and cut 9,577 gross shorts, meaning they cut bearish trades and added bullish ones. Producers and swap dealers both bolstered their net-short positions by cutting gross longs and added gross shorts.
As in the disaggregated report, the non-commercial traders in the gold legacy report also added gross longs and cut shorts. They added 4,428 gross long contracts and cut 8,844 gross shorts. They are now net-long 104,751 contracts, the highest since Sept. 2. Commercials are net-short and raised that position by cutting gross longs and adding gross shorts.
Analysts at Commerzbank said based on the CFTC data, fund activity is behind the recent rise in gold prices.
Joni Teves, analyst at UBS, concurred. She said gold's ability to hold near the $1,200 area “over the last three weeks has mostly been driven by short covering, amplified by thin liquidity conditions. After reaching the year's high of 16.30moz (million ounces) in early November, gold gross shorts have consistently declined by 1.50moz per week. Latest CFTC data shows that gold shorts have declined by a total of 4.50moz or 28% to 11.80moz as of Dec. 2, which is the lowest level since the beginning of September. During this period, gold gross longs have increased by 1.00moz or 5%.”
Managed-money traders increased their net-long silver position for the third week, raising it to 14,428 contracts; however, they did it by short covering. They cut 1,573 gross longs and cut 7,176 gross shorts. Producers increased their net-short position by adding more gross shorts than gross longs. Swap dealers moved to a net-short position by cutting gross longs and adding gross shorts.
For the fifth week, funds increased their net-long silver position in the legacy report, raising it to 20,751 contracts. As in the disaggregated report, non-commercials cut 2,289 gross longs and cut 8,466 gross shorts. Commercials are net-short and increased that position by cutting gross longs and adding gross shorts.
Jonathan Butler, precious-metals strategist at Mitsubishi, said given the sizable short covering seen in silver, the gross short position held by funds is now the smallest since mid-August, “indicating that investors have greater conviction now that silver will not see substantially lower prices in the short term.”
Commerzbank analysts said silver net-long positions rose even higher than the gain seen in gold in, up by a full 58%. “All the same, the silver price actually fell marginally in the period under review, which suggests weak physical demand. That said, the silver ETFs (exchanged-traded funds) tracked by Bloomberg saw inflows of 28 tons during this period, which in turn points to only subdued silver demand from industry. The silver price is unlikely to make any significant gains until this picks up,” they said.
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Managed-money accounts in platinum increased their net-long position to 18,439 contracts. They added 382 gross longs and cut 3,134 gross shorts. Non-commercials in platinum also boosted their net-long position, lifting it to 26,796 contracts in the legacy report. They added four gross longs and cut 3,491 gross shorts.
Large speculators’ net-long palladium holdings slightly rose in the disaggregated report to 18,439 contracts. They added 189 gross longs and added 24 gross shorts. However, the palladium legacy report saw non-commercials cut 352 gross longs and add 119 gross shorts, which lowered their net-long to 21,130 contracts.
“The Nymex palladium book bucked the trend and was the only precious metal posting a decline in positioning,” Teves said. “Palladium net longs (fell) … due to long liquidation and some additional short positioning. Some longs that were established three weeks ago likely took the opportunity to book profits – palladium prices were up as much as $50 between Nov. 20 and 28. As we've mentioned previously, year-end trading is likely to be limited both in size and time-frame, with investors more inclined to book profits quickly.”
Managed-money accounts increased their copper net-short position for the second week. Their net-short position rose to 5,919 contracts, as they cut 3,442 gross longs and added 606 gross shorts. Large speculators in copper’s legacy report added to their net-short position, lifting to 34,190 contracts. These traders cut 4,697 gross longs and added 1,168 gross shorts.
Aakash Doshi, analyst at Citi Research, said concerns about China reflect the build in funds’ net-short copper positions, particularly as copper prices on the Shanghai Futures Exchange fell sharply during the time period covered by the CFTC report. After the reporting window closed, Comex copper prices rose following news of strong November copper import numbers, so “we would expect some short positioning to have been covered, suggesting a pullback in net shorts for the next CFTC report,” he said.
For further information, see the CFTC’s website.
By Debbie Carlson dcarlson@kitco.com
Follow me on Twitter @dcarlsonkitco
