When there's a big sell-off in gold, speculation often ensues about some big hedge fund liquidating positions in exchange-traded funds as the likely culprit—or inevitable victim. Maybe not this time. While gold futures have plunged $250 in three days, gold ETF holdings have held steady.
Before this stunning sell-off in gold futures , money managers had already been reducing net long positions in the precious metal for weeks. A sell-off preceded by a drop in non-commercial net long positions "is usually a sign that the 'smart money' is exiting," said MF Global precious metals analyst Tom Pawlicki.
Net long positions in gold futures have slid 10 percent the week ending September 21, tumbling over 30 percent since reaching a peak near 250,000 contracts on August 2. Open interest has been falling steadily for most of this month.
Meanwhile, tracking gold futures, the value of the largest gold ETF —SPDR Gold Trust—has plummeted more than 10 percent since Wednesday. Yet there have been no net outflows in the GLD. As of Friday, GLD holdings stood at a one-month high of 1,252.21 tons.
Pawlicki said he's "surprised" by the lack of defections from ETF investors and predicts the gold market "won’t find a bottom until a sizeable portion of the long trade exits."
The slide in silver has been even more severe, with net long positions falling 14 percent last week, ahead of a 25 percent plunge in the flat price. Silver hit a new 2011 low just over $26 an ounce earlier in Monday's session.
"The continued overnight selling in silver is very impressive and therefore still leaves open the door for liquidation to come from the GLD positions held by hedge funds," said Petromatrix analyst Olivier Jakob.
Perhaps ETF sellers came in this morning after seeing the drop in silver and another $100 free-fall in gold futures overnight to a low of $1535 an ounce.
Gold and silver prices have bounced sharply mid-day, with silver now back over $30 and gold above $1,600.
Anthony Neglia, president of Tower Trading, said Tuesday's expiration of gold options may be another factor helping to keep gold futures trading around the $1,600 mark, with significant open interest on options at that strike price.
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