- Hedge Funds are Short Silver Futures
- Silver is More Likely to Rise than Gold on a Break Out
- Hedge Funds are Long Gold futures and Options
Gold prices have made it back into the headlines as a tit-for-tat trade war perpetuates between the Trump White House and China. Despite claims from Trump that this is not a trade war, and that any war with China on trade was lost decades ago, the back and forth nature of new tariffs are increasing volatility on riskier assets providing additional interest in safe haven products. Despite gold’s luster as the place to hide your money during volatile market conditions, silver is more likely to benefit given current positions held by hedge funds.
Hedge Funds are Long Gold Short Silver
While there are many ways to initiate a positions in both gold and silver, futures contracts remain a popular way for hedge funds to derive risk. A futures contract is the obligation to either buy or sell gold bullion or silver bars at a specified date in the future. The risk that is generated in the futures market by gold and silver producers, hedge funds and retail traders, is reported on a weekly basis by the Commodity Futures Trading Commission (CFTC). The CFTC issues a report called the Commitment of Trader’s (COT) report, on Friday’s which reflects the most recent positions as of the prior Tuesday. Since the CFTC regulates futures markets, the report is an accurate reflection of what was held by each category of trader as of the prior Tuesday.
What Does the Report Tell You?
While one report does not disclose the secrets to the future direction of a market such as silver coins or gold bars, the COT report does provide small investors with a look at what larger hedge funds are doing with specific assets. There are three different categories of traders reported in this report. For metals such as gold bullion and silver bars, there are swap dealers, managed money and other reportables. Most of the positions held by swap dealers are transferred to producers or refiners of metals.
For example, when hedge funds are taking a view that gold prices will rise, you might see a significant increase in long positions in futures and options which coincides with a decline in short-position in futures and options. In the week ending March 27, 2018, managed money (which is the category that describes hedge funds), increased their long position in futures and options by 40K contracts, while decreasing their short position in futures and options by 10.7K contracts. 40,000 contracts is equivalent to 4-million ounces of gold bars.
You should also look at the open interest which tells you the current size of the positions held by each category of trader. For example the current open interest in gold is 193.9K long compared to 21K short. That means that hedge funds are betting that gold prices will rise.
Hedge Funds are Short Silver
While the gold trade appears to be crowded with hedge funds looking for prices to rise, this is not the case for silver bullion. According to the most recent commitment of traders report released for the date ending March 27, 2018, managed money is short 66K contracts and long 32K contracts. The open interest in silver shows that hedge funds are short twice the number of contracts they are long. If silver prices break out, these hedge funds will have to buy back their short positions which will catapult the silver bullion price.
The current market environment shows that market volatility continues to perpetuate and that hedge funds are betting that gold prices will rise. The most recent commitment of traders report also shows that hedge funds are betting that silver prices will fall, which means that silver is more likely to surge higher if precious metals prices break out.
If you are interested in taking advantage of a declining treasury yield and higher gold prices click on this link to get access to your Investment Kit or better yet, give us a call today at 800–982–6105.
Treasure Coast Bullion Group
Read more by Treasure Coast Bullion Group, Inc - Staff Writer