Gold & Silver Traders Positions on March 5th – Weekly Update

The latest Standard Bank Research report was published earlier today. As we explained in our short term gold and silver prices forecasts, the report reveals important information when it comes to the positions of the big players (the ones that are moving the markets).

Past week’s update showed a bullish picture for gold because of a significant decrease in the long vs short speculative positions compared to total open interest. The picture for silver was not that good.

Based on the latest figures (showing the situation till mid past week), gold still has a bullish reading when it comes to the net speculative length compared to total open interest. Moreover, the report mentioned the following:

Surprisingly, the post-FOMC sell-off that occurred Wednesday 20 February was overwhelmed by some interest at the end of the week, which culminated in a 49.1 tonne increase in net speculative length. Clearly, participants were encouraged to re-position at these lower prices. From a risk/return perspective, we believe that the value in being short gold has declined substantially and that the largest part of the decline in the gold price has taken place already.

gold_net_spec_length_march_05_2013

Silver’s net speculative length took a significant dive, being the result of short covering. While the reading stood very high at the beginning of February, it is close to a bullish reading now. From the research report:

Silver bore the brunt of the post-FOMC sell-off, without any respite occurring later in the week, as it did for gold. A hefty 809.2 tonne fall in net speculative length was recorded, equating to a 19.2% w/w drop—the worst among the precious metals.

silver_net_spec_length_march_05_2013

On a five year average, the net speculative length indicator for both metals looks bullish.

net_spec_length_march_05_2013

The tricky indicator in the metals, with an emphasis on silver, is the total open interest. Although open interest in gold is slightly lower than the 5 year average (which is a good sign combined with the above charts), the silver market has a very high open interest (23,2k tonnes) when compared on its five year average (19,4k tonnes). It weighs on the short term outlook. The report notes: “While a very large short position is not necessarily a case for prices to move higher again, it does indicate that it is becoming a crowded trade, in the futures market at least.”

open_interest_march_05_2013

Based on these figures, gold looks better than silver in the short run. The high open interest is an important point of attention, especially in silver.

In closing, it should be noted that the US dollar has broken out of a five month consolidation range. It is hard to believe, given the unprecedented monetary easing policy of the US Fed. In that respect Dan Norcini notes: “Consider the fact that next to Japan, the Fed has been the biggest debaucher of the currency in terms of the sheer size of money creation it has embarked upon. It just goes to show how rotten the Yen, the British Pound have become and possibly the Euro might be. In other words, the US Dollar is the lesser of the evils.” An important evolution to keep a close eye on.

A weekly contribution comes from K. Xeroudakis, precious metals strategist, mentored by Ted Butler.

Follow the gold and silver price evolution week on week. Read the previous updates.

This One Chart Shows Gold Is Bullish  (February 25th)
What’s Next For Gold & Silver – Some Signals  (February 23d)
Gold – Here Is The Good News  (February 21st)

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