jueves, 22 de octubre de 2015

jueves, octubre 22, 2015
Gold And Silver Weekly: From An Extreme Low To An Extreme High
             
Short-covering continues in gold and silver.
       
Money managers become aggressively bullish on silver, they build up progressively net long positions in gold.
       
ETF investors bought gold at an aggressive pace, were inactive in the silver market.
       
I expect the spec positioning to improve further in the near term; I am cautious in the medium-term.
Every week, I closely monitor net speculative positions on the COMEX as well as ETF holdings in so far as the historical economic behavior of gold and silver prices suggests that over a short-term horizon (<3 months), gold prices are largely influenced by changes in the forward balance of these markets, reflected in changes in net spec length and ETF holdings.

Speculative positioning

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Source: CFTC.

Gold. According to the latest Commitment of Traders (COT) provided by the CFTC, money managers, viewed as a relevant proxy for speculators, raised remarkably their net long position for the fourth week in a row as of October 13, while spot gold prices were up about 2 percent over the period covered by the data. The net spec length rose by 31,375 contracts (or 30 percent) to 77,213 from 45,838, driven by a combination of short-covering (-18,439 contracts) and long accumulation (+12,936 contracts).

Although the net spec length is down 11 percent on the year, it is at its highest level since May 2015.

The gross long leg remains at a low level (+2.7 percent ytd) while the gross short leg remains up 35 percent so far this year.

The strong improvement in the spec positioning coincided with a more supportive macro environment to non-yielding commodities, characterized by a weaker dollar and lower US real interest rates as a result of disappointing US data, including retail sales and the PPI for September as well as the Philly Fed manufacturing index for October. However, the US dollar seems to have rebounded of late, largely reflecting encouraging US data last Thursday and Friday, depressing gold prices. This reinforces my view that gold prices will continue to be largely driven by the current macro environment.

In conclusion, in the near term (<1 month horizon), I expect the net spec positioning to continue to improve, reflecting a more supportive macroeconomic environment. However, I do not believe that this improvement will continue beyond a 3-month horizon as the Fed looks set to beginning the normalization of its monetary policy by the end of the year. Indeed, the October FOMC meeting on October 28 could be the trigger of a possible sell-off in gold prices.

Silver. Similarly to gold, money managers raised importantly their net long positions in the week to October 13, while spot silver prices were broadly unchanged (-0.31 percent) over the period. The net spec length rose by 13,821 contracts (or 49 percent) to 41,973 from 28,152 contracts, driven by short-covering (-7,030 contracts) coupled with long accumulation (+6,791 contracts).

The fact that silver prices have failed to increase significantly despite the improvement in spec positioning suggests that there other factors at work, such as poor industrial demand in the EM world, depressing silver prices.

While the more bullish stance among speculators is likely due to loosening Fed expectations following the raft of disappointing US data, it is worth noticing that the gross long leg is already up 40 percent on the year, the gross short leg down 31 percent, and the net spec length up 117 percent.

The sharp changes in net spec length reinforce my thesis outlined in my previous weekly report: the robust improvement in the spec positioning has not been due to the fact that money managers have suddenly revisited their hypotheses regarding the forward fundamentals of the silver market; rather I suspect that it is more the result of the nature of the market, which tends to be overstretched sometimes to the short side (thereby provoking a rally in prices) and sometimes to the long side (hence triggering a consolidation).

In conclusion, the market is currently moving to an extreme high and market participants should be mindful and watch for early signals of a change in direction toward an extreme low.

At present, I would continue to be on a further appreciation in silver prices in the near term. However, the October FOMC is approaching (October 28), which could lead to a more bearish stance among speculators.

Investment positioning

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Source: FastMarkets.

Gold. ETF investors have bought gold at a robust pace of late following a disappointing early October. They indeed bought 9 tonnes of gold in the week to October 16 after selling one tonne the previous week despite a more supportive macro environment to commodities. Investors likely interpreted the recent US data as a further indication that the Fed will not change its near term policy, especially following the disappointing September employment report.

However, my call is still for a December liftoff as I believe that the US labor market continue to enjoy some further improvement, albeit at a slower pace. Further it is worth noticing that historical evidence suggests that the October employment report (released early in November) is often associated with upward revisions to the August and September employment reports.

As such, I would not be surprised to see outflows re-emerge in the next few weeks.

Silver. ETF investors were broadly inactive in the week to October 16 after selling the precious metal aggressively in the previous week (-129 tonnes), the largest weekly decline since May 2015. In October so far, ETF investors have sold about 126 tonnes of silver after selling 242 tonnes and 71 tonnes in September and August, respectively. Contrary to gold, loosening Fed tightening expectations have failed to induced some silver ETF buying, suggesting that investors are already well positioned and are less momentum based buyers than they used to be a few years ago. This development is relatively surprising as money managers have recently become increasingly bullish toward the metal. Since we continue to believe that the forward fundamentals of the silver market are weak, reflecting weakening industrial production growth in the EM world, where most of the metal is consumed, we expect further outflows in ETF holdings for the remainder of the year. ETF investors remain net sellers of silver at 459 tonnes on the year.

Spec positioning vs. investment positioning

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Source: MikzEconomics.

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