Short-covering, not demand for safe haven, drives gold - Data

In a research note dated Monday, commodity analysts at Commerzbank said that gold’s gross short positions have fallen to their lowest level in 12 weeks.

Meanwhile, the disaggregated Commitment of Traders Report (COTR) signaled that in the week ending Aug. 25, money-managed speculative gross long positions of Comex gold futures rose by 7,381 contracts to 119,456. At the same time, short covering was more than three times as strong, with gross shorts falling by 25,316 contracts to 78,842. Gold’s net length now stands at 40,614 contracts.

According to Phillip Streible, senior marketing strategist at RJOFutures, the numbers indicate that money managers are not interested in setting new long positions and were probably accommodating themselves to shifting expectations of the Federal Reserve’s interest rate hike.

Money managers were probably more interested in jumping into riskier equity markets, taking advantage of extremely low prices, he explained.

The gold market could keep rising on further short covering, but with few new longs entering the marketplace, there is nothing to create a sustainable rally, he said.

Ole Hansen, head of commodity strategy at Saxo Bank, also considered that prices could struggle in the near-term. In his view, short-sellers now have more ammunition to push prices lower “after having cut bearish bets by one-third during August.”

“This put to rest, at least for now, the belief that the rally was driven by safe-haven demand,” he said.

Meanwhile, gold has been able to obtain some degree of investment. According to CFTC trade data, money managers continued to leave the silver market.

The disaggregated COTR signaled money-managed speculative gross long positions of Comex silver futures declined by 2,310 contracts to 37,735. In the meantime, short contracts fell by 2,553 contracts to 37,815. The silver market is still net short, but by only 80 contracts.

When gold hit a six-week high during the survey period, the silver market was on its way to a six-year trough, giving up 1.7% during the five trading days.

Silver’s new low actually happened during a new survey period so investors will have to wait until the next report, to be released Friday, to assess the latest damage done to the speculative market.