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Large speculators trim long positions in gold

Large speculators exited the gold market during the most recent reporting week for the Commodities Futures Trading Commission, which included the time frame during which both the Federal Reserve and European Central Bank disappointed the market by not announcing any further monetary accommodation measures.

Overall, the change in positioning for metals for the week was mixed, with these accounts increasing their net long in silver, platinum and palladium but increasing their net-short position in copper. The CFTC report, issued late Friday, covered the period from July 31 through Aug. 7.

The price movement during the most recent CFTC reporting week was also slightly mixed. The most-active December gold contract edged $1.80 lower to $1,612.80 an ounce. September silver rose 17.2 cents during the week to $28.086, October platinum fell $6.50 to $1,410.40 and September palladium dipped $2.35 to $588.20. September copper gained 2.3 cents to $3.4405 a pound.

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The Fed stood pat on monetary policy at its Aug. 1 meeting. Analysts said then that prices had moved higher ahead of time as some participants factored in potential Fed action, then prices fell back afterward when there was none. Nevertheless, gold has risen since, with many now looking for policy-makers to signal more loosening of monetary policy at the Fed's Jackson Hole, Wyo., symposium at the end of the month.

"Anticipation of further monetary easing by the Fed is supporting precious metals prices in a context of decelerating economic growth," BNP Paribas said in a research note. "A 'wait-and-see' attitude seems to be largely prevailing at the moment, and could remain until the end of the summer holiday period, which coincides with (Fed Chairman Ben) Bernanke's Jackson Hole speech on 31 August. The nature of a potential further round of quantitative easing is being debated. In particular, the idea of an open-ended QE appears to be making its way, whereby balance sheet expansion is maintained until economic progress has been achieved."

As for the July 31-Aug. 7 reporting week, the large non-commercial accounts–commonly referred to as the funds–-in the CFTC's "legacy" report cut their net-long position in gold to 119,011 contracts for futures and options combined from 128,836 the week before. In the "disaggregated" report, money managers cut their net long position to 85,510 lots from 96,200. Several investment banks reported that the declines were due more-so to long liquidation–in which traders exit positions in which they previously bought–rather than fresh selling. The non-commercials reduced gross longs by 8,213 lots and money managers by 8,187 lots.

UBS pointed out that current net-long gold speculative positioning is light historically, a little less than half of the all-time high. "From a positioning perspective, gold is well-poised to respond strongly to a positive turn in sentiment," UBS said.

Meanwhile, speculators increased their net-long position in silver to the highest level since early May, pointed out Barclay Capital. The non-commercials upped their net long to 14,365 lots from 14,233, while money managers upped their net long to 9,323 from 8,589.

In the legacy report, the increase occurred as short covering outpaced long liquidation. The number of total shorts fell by 777 lots, which reflects traders buying to cover or exit short positions in which they previously sold. This exceeded the 645-lot decline in total longs. The picture was different in the disaggregated report, however, which showed a combination of fresh buying and short covering. In this report, gross longs rose by 333 contracts while the number of short positions declined by 400.

Net-long positioning also rose for both platinum group metals. "U.S. auto sales were a little better than expected (in July), and despite weaker European auto sales the global picture for this sector is still on track," TD Securities said in its report on the CFTC's commitments of traders data. The main industrial use for PGMs is catalytic converters for motor vehicles.

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Large speculators increased their net length in platinum due to fresh buying. In the legacy report, the non-commercials upped their net long to 19,196 contracts from 18,467 the previous week, with the number of total longs rising by 693. In the disaggregated report, money managers upped their net long to 8,569 from 8,260, as the number of total longs rose by 290.

While net length also rose for palladium in both CFTC reports, the buying was more mixed. The legacy report showed more short covering, as the number of total shorts held by non-commercials fell by 255. When adding the 102 rise in total longs, the non-commercials' net length climbed to 4,935 lots from 4,578 the previous week.

In the disaggregated report, however, the net long rose solely due to fresh buying. Money managers upped their gross longs by 223 lots while increasing total shorts by 17. Their net-long position increased to 3,054 lots from 2,848 the prior week.

The amount of bearishness among large speculators increased in copper. The non-commercials upped their net-short position to 17,260 lots from 14,720 the prior week, while money managers increased their net-short to 8,203 from 6,664. "China slowdown concerns continue to weigh heavily on the specs," said TDS.

In both reports, the fresh selling outpaced the fresh buying. In the legacy report, the number of gross shorts rose by 3,539 lots and the number of gross longs by 999. In the disaggregated report, the tally was 2,521 to 982 in favor of more gross shorts.

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