Analysts at TD Securities broke down the CFTC weekly report.
Key Quotes:
Money managers decided to aggressively cut their longs and build new short exposure, after it became apparent that the Fed intends to continue to target modestly restrictive monetary policy amid a tight labor market. A firm USD, weakening CNY and higher yields across the curve were very important factors persuading specs to reduce gold length. However, now that the equity market has given up considerable value, 10 year yields slid materially below 3.20% and the USD lost some of its luster, the recent jump above $1,200 suggests investors may be more willing to build net long exposure.
Following last week’s aggressive round of short-covering in platinum, which prompted speculative length to turn long on net, money managers took a breather as rising treasury yields capped further gains for the non-cash flow yielding asset. Speculative interest in the metal remains lackluster, as a recently steeper yield curve and a technical break in yields removed any impetus to increase long exposure for the time being. That being said, we suspect that net length will continue to grow in next week’s report, as the recent equity angst, which helped push precious metal prices higher on safe-haven demand, likely also contributed to another round of covering from systematic trend followers.
WTI crude specs further reduced their net positioning this past week, as longs were persuaded to take profits on their positions as crude made new highs north of $76/bbl for the first time since 2014. Further, building inventories as refinery maintenance kicks off, downward demand revisions from industry reports, and a bout of risk-off equity weakness saw prices tumble off the highs, likely attracting further liquidations and some short interest. But with plenty of firepower for spec length to increase, a tightening market on the horizon amid Iranian sanctions and returned refiner demand, we expect prices to recover to the upper bound.
Share
