Gold steady as banks unload short positions

Silver is a different picture, which is our second chart.

It is only in the last month under the relentless attack on gold that the combined bank short position has fallen, and then by not much compared with gold (15,471 contracts or 27%). The short position held by managed funds is 17,123 contracts, five times the level on Feb. 5 and the number of traders in this category short has risen from 10 to 26. Again and as with gold, when you see a sharp rise in the number of managed funds you know that dealers with little experience are speculating; dealers who haven’t bothered to consider why the bullion banks are so keen to close their short positions.

It is doubly dangerous to short silver futures when there is evidence of strong underlying demand for bullion. Sales of silver eagles are hitting records, and 43 tonnes was added to the SLV ETF on Wednesday, just the latest evidence of continuing demand. This is why I regard the money managers’ short positions as the best contrary indicator available.

Next week

It will be interesting to see if the short-selling by the hedge funds increases further from these overblown levels. The bears are talking gold down to below $1,500 ultimately, but they are, as they say, talking their book. Next week’s news, with a busy Thursday, is as follows.

Monday: Eurozone trade balance.
Tuesday:
UK CPI, eurozone economic sentiment. US building permits and housing starts.
Wednesday:
UK Budget. US FOMC rate decision, Fed’s economic projections.
Thursday:
Eurozone PMI, UK Public Sector Borrowing, UK retail sales, CBI Industrial Trends Survey. US Initial Claims, Manufacturing PMI, Existing home sales, Leading Indicator.
Friday:
Nothing significant expected.

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About the Author
Alasdair Macleod

Alasdair Macleod is head of research for GoldMoney. He also runs FinanceAndEconomics.org, a website dedicated to sound money and demystifying finance and economics. He has a background as a stockbroker, banker and economist. He can be contacted at Alasdair.Macleod@GMYF.org and followed on Twitter @MacleodFinance.

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