CFTC Data Shows Investors Short Gold Ahead of December FOMC

Large speculators flipped to a net-bearish position in gold futures for only the second time ever in one Commodity Futures Trading Commission report, while further slashing their net long in another, according to the most recent data compiled by the government agency.

Most of the change was driven by fresh selling, rather than traders exiting bullish positions, as had been the case for much of the previous few weeks. However, this in turn creates potential for short covering in metals as bearish traders either book profits or exit to avoid losses if the market reverses against them, analysts said.

The move came as traders factored in expectations that the Federal Open Market Committee will hike U.S. interest rates next month. This has boosted the U.S. dollar.

“An adjustment in positioning was warranted, as market participants anticipate a December

Fed rate hike,” UBS said. “But the speed and magnitude of the washout – and particularly the

increase in gross shorts – raises possible short-covering risks up ahead.”

Further, with traders having already given up the large net-long position from just a few weeks ago, this “reduces the risk of a pronounced downside response should the Fed start tightening in December than

would have been otherwise,” UBS added. “At the same time, lighter positioning creates better conditions for a post-rate hike recovery, particularly if the Fed signals a slower pace after lift-off.”

via Kitco

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza