Hedge Funds Pile into Gold and Silver

Hedge funds almost doubled their gold net-long position in the past three weeks

gold silver 1-15-18

According to a recent article on Kitco, hedge funds are finding gold and silver appealing in the new trading year and are continuing to pour cash into the precious metal sector. A Commitments of Traders report for the week ending January 2 showed long positions in Comex gold futures rose by 40,708 contracts, bringing gold’s overall net length to 148,174 contracts. Commerzbank pointed out that hedge funds have almost doubled their net-long position in gold over the past three weeks.

Author of the article, Neils Christensen, says gold continued its gains during the survey period, rising more than 2% in that time to break through the key $1,300 level. According to analysts, the dollar’s decline played a large part in money managers’ decision to move into gold – the greenback, which recently sunk to a three-year low, continues its downhill trajectory over concerns regarding weak inflationary pressures.

The article reports that, although Trump’s tax plan finally materialized after months of speculation, market participants are doubtful that the reform will achieve the desired inflationary effect, said Bart Melek, head of commodity strategy at TD Securities. Should inflation remain, Melek believes the Federal Reserve won’t be able to proceed with its plans to hike interest rates several times this year. Lower interest rates will reduce the perceived opportunity cost of owning precious metals, making them more attractive to investors.

The picture for the U.S. dollar in the coming months remains bleak as the European Central Bank looks to apply a tighter monetary policy, which would lower the dollar’s value against the euro writes Christen. Further losses for the dollar would likely translate to prolonged upwards momentum for gold, as the metal has already enjoyed considerable gains since the start of the year.

The article also reports that despite gold’s solid performance in the opening weeks of the year, silver managed to impress even more, especially when considering the spot it was in during the closing days of 2017. Having come close to ending the year on a bearish note with hedge funds increasing their short positions, Christen says the silver market managed to rebound in the new year both in terms of sentiment and price gains.

The same report showed money-managed net short silver positions fell by 17,169 contracts in the period to reach 38,501. Meanwhile, long positions rose by 5,821 contracts, bringing silver’s total net length to 15,803 contracts. Like gold, silver continued its gains amid the sentiment shift, rising by 3.6% as prices breached the important $17 level.

Noting that this is the second time in the last six months that funds didn’t hold onto their short silver positions, head of commodity strategy at Saxo Bank Ole Hansen added that last week’s buying of 23,000 lots marks the biggest purchase since May 2015.