Metals: Two weeks of gold and silver selling became three last week when both metals suffered a long overdue correction, triggered by vaccine hopes, better-than-expected US data, a stronger dollar and not least rising real yields. This following a four-week surge where gold rallied by 15% and silver by 57%. The net longs dropped to an eight-week low after speculators cut the gold net-long by 13.5% to 150k lots and the silver by 27% to 23k lots.
The rising volatility in gold futures spreads and the dislocation to spot gold traded in London have been cited as reasons why funds have moved long exposure from COMEX gold futures (tracked in this report) into Exchange-traded funds instead. The continued reduction in net-longs, however are a potential cause for concern from a gold bullish perspective. With the brightest minds shunning both metals despite a catalogue of bullish drivers, it may be time to consider the risk of a prolonged period of consolidation/correction. At least in the short-term while economic data continues to improve, the dollar short looking stretched and the U.S. yield curve show signs of steepening.
We have not changed our long-term bullish view on gold and silver, but also have to accept that the trade, especially through non-leveraged ETF’s, has become very crowded, thereby raising the risk of increased two-way action.
We have not changing our long-term bullish view on gold and silver, but also have to accept that the trade, especially through non-leveraged ETF’s, has become very crowded, thereby raising the risk of increased two-way action.
The elevated HG copper long was reduced for a second week as the metal stopped rallying after finding resistance at $3/lb. The net-long was reduced from a two-year high, this time by 12% to 47.4k lots.