Gold steady as banks unload short positions

Bullion has been steady this week, with gold rising $15 to $1,593 and silver unchanged at $28.95 as of Friday morning. Open interest in gold has picked up by 19,000 contracts in U.S. futures markets this month so far, and in silver over 6,100 contracts, suggesting there is good support at current levels.

Last weekend the Bank Participation Report was released, which shows the outstanding net short position in futures markets for both U.S. and foreign banks. As can be seen in the chart below, substantial progress has been made by both bank categories in reducing their overall short exposure to a combined 89,565 contracts (278.6 tonnes) from 140,958 (438.4 tonnes) last August. The tactics employed have been simple: Put the word out to the hedge funds to short gold.

Since September 2009, the average number of managed funds (hedge funds) with short positions has been 21, with as few as 5 and a maximum of 56 on Feb. 19, on March 5 there were 54 shorts. Looking at the weekly figures it has been unusual to see more than 25-30 short positions, suggesting there are as much as 25 funds short that do not normally deal in gold futures. The average total managed money short position is 13,714 contracts; on March 5 it was a record 67,182.

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