Gold futures are pulling in hedge-fund bulls again.
But retail punters...?
LAST WEEK's urgent bid to buy gold and
silver pushes ahead, writes Adrian Ash at BullionVault.
Who else is buying? Not investment funds via ETFs. Such
exchange-traded trust funds give stockholders exposure to price, but without
physical ownership. Journalists regularly cite them as big drivers of the decade-long bull market in bullion.
Yet their holdings barely moved during last week's surge.
In gold, the top two US-listed funds, the GLD and IAU,
added only 0.5% more gold to back their shares last week. But the gold price
rose 4.0%.
Silver's biggest ETF trust fund actually shrank. Dropping
15 tonnes, the SLV ended Friday holding 10,030 tonnes of silver
bullion.
Yet the silver price last week rose 7.3%.
So what's going on? First, there's China. We think that,
after record-high demand from its consumers and private investors failed to
reverse gold's 30% drop in 2013, this year's gold gains signal a "flight to safety" in China by
much bigger money as its historic credit bubble bursts.
Monday's gold trading in Shanghai says this dash for gold
is picking up pace. Volumes in the most popular contract hit a 3-month high,
with more than $2.0 billion changing hands. There's also a strong, urgent bid
under silver too. Volumes surged to a 5-month high near $2.5bn.
Second, derivatives trading in the West has also turned
decidedly bullish on gold and silver. Or rather, it's now markedly less
bearish amongst speculative traders.
New York's Comex market is where, using gold futures
contracts, mining companies as well as refiners and bullion banks can go to
"hedge" their risk, while hot-money speculators increase theirs.
Every Tuesday night, US regulator the CFTC gets data from these players, and
it publishes those figures on Friday.
You can see on this chart here how the hot money has
turned more bullish on gold, but with plenty of room left before it gets
anywhere near the peak levels of 2-3 years ago.
Speculative traders (aka the "non-commercials",
to distinguish them from the miners, refiners and bullion banks with
commercial interests in the gold industry) raised their bullish betting as a
group last week to the highest level since September. Gold was then trading
at $1400 per ounce.
The hot money also raised its bearish position, but more
slowly. And so the net speculative position (of bullish minus bearish bets)
grew for the 6th week out of seven, to equal 310 tonnes-worth of gold
contracts.
That compares to the 2013 average of 313 tonnes. For the 5
years before that, the "net spec long" averaged 722 tonnes. So as I
say, you can see there's lots of room yet for more bullish betting on gold.
For silver, the same outcome last week but for different
reasons. Speculative traders barely touched their bullish bets in the
week-ending last Tuesday. But they slashed their bearish betting by almost
one-fifth. With prices rising, this is known as "short
covering"...where speculators are forced to close their bearish
bets....chasing prices higher still.
Gold positioning data for last week also say that private
individuals trading futures and options are also out of the game right now.
The doctors and dentists (as brokers call 'em, for their love of getting
filled and drilled in volatile trade) held an average 36-tonne net long on
gold in 2013. That was down from 123 tonnes over the 5 years of 2008-2012.
Last week it totaled just 3 measly tonnes. So however soaked
with gold investment stories the financial media might look today, very
few private punters are daring to back this uptick with leveraged money just
yet.
So all in all, early days for this turnaround in
sentiment. Gold and silver priced in a lot of good news for the economy last
year. The rebound from New Year's trip back to the 3-year lows hit in
midsummer 2013 has only recovered a small chunk of last year's losses so far.
Yes, a little of the hot money is in. So are Chinese
wholesales, serving the world's heaviest consumer buyers. But the allocations
that really matter, from big Western investment funds, aren't showing in the
ETF trust funds. For now.
