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Hedge Funds Are Driving Price Action In The Gold Market

Hedge Funds Are Driving Price Action In The Gold Market

Via SchiffGold.com,

Looking at the data, it appears hedge funds are currently driving…

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This article was originally published by Zero Hedge

Hedge Funds Are Driving Price Action In The Gold Market

Via SchiffGold.com,

Looking at the data, it appears hedge funds are currently driving price action in the gold market

Please note: the COTs report was published 12/3/2021 for the period ending 11/30/2021. “Managed Money” and “Hedge Funds” are used interchangeably.

The Commitment of Traders analysis last month showed that selling had been exhausted and hedge funds were going long again. It highlighted the trouble gold faced at the $1,800 level. After the October Jobs and Inflation data, hedge funds went big into the market driving prices solidly through $1,800 before the market ran out of steam at $1,870.

The multiple attempts on $1,870 in rapid succession looked like another resistance would fall and send gold up through $1,900, especially if Brainard was nominated as Fed chair. Unfortunately, resistance held strong and a Powell nomination sent gold back through newly established support, which proved much more fragile on the way down vs the way up.

Gold is trapped below $1,800 again. A very weak jobs report provided only enough fuel to keep gold flat on the week. Will a hot inflation report next week be perceived as a “hawkish fed trade” or a “wealth preservation trade?” It all depends on managed money. The hedge funds are in complete control of this market at the moment as the data below shows.

Gold

Current Trends

Managed Money/Hedge Funds Net Longs increased slightly since last month, from 86k to 92k in November. On Nov 16, net longs peaked at 142k. This positioning accounts for the round trip gold took during November.

As the chart below shows, the November peak in longs did not see the same price appreciation as earlier this year. For example, in June of 2021 aggregate Net Longs were reaching 250k and the price of gold was at $1898. November saw net longs peak at 287k vs a price peak of $1853 on the same day (note: the price did reach $1879 but not on the same day as CFTC reporting).

Figure: 1 Net Notional Position

While “Other” has stayed relatively flat over the last several weeks with healthy long positions, Hedge Funds have been in and out. To see the strength of the correlation, the chart below zooms in on only Hedge Funds but extends back to Jan 2018. Hedge Funds have taken back control of the market. Their positioning is driving the price action each week. The peaks and valleys are perfectly aligned.

Figure: 2 Managed Money Net Notional Position

Putting actual numbers shows the true effect. Below lists the year and the Hedge Fund correlation vs “Other” correlation:

  • 2017 .87 vs -.73

  • 2018 .94 vs -.74

  • 2019 .96 vs .57

  • 2020 -.8 vs .64

  • 2021 .82 vs -.02 (YTD)

  • 2021 .85 vs -.43 (July – Nov)

The Hedge Funds lost control of the market in 2020. This is when Other actually drove the market higher. The group was helped by strong ETF flows and record delivery requests at the Comex. 2020 created a new baseline price in the metal. For example, in April 2019 Managed Money Net longs stood at 37k with a gold price of $1,303. On Sept 28, 2021, gold net longs reached 30k vs a price of $1735. At the moment $1750 is showing as strong support just as $1800 proves hard resistance.

Correlation does not prove causation, but the data makes a compelling case for Hedge Funds driving price action. Bottom line: the “weak hands” of Hedge Funds are dominating the short-term price movements of gold, but the physical demand keeps the market trending upwards.

Weak Hands at Work

The chart below shows the week-over-week change by holder. The Hedge Funds spent 4 weeks building long positions followed by two weeks of hard selling. The traders are not in the market because of the fundamental reasons supporting the case for gold. They are jumping in and out, trading the news to make quick money in highly levered positions.

True investors should ignore this short-term movement and recognize the power of physical metal as insurance against government ineptitude.

Figure: 3 Silver 50/200 DMA

Still, for investors frustrated by the price movement, looking at the Hedge Fund trading provides a clear explanation. The table below has detailed positioning information. A few things to highlight:

  • The Managed Money Net Long monthly increase was driven primarily by shorts

    • Shorts have moved lower from 55k to 45k

    • Longs fell over the month from 141k to 137k

  • Other the past week, the move was primarily long liquidation from 152k to 137k

  • “Other”, which still represents the biggest Net Longs, was also driven by shorts closing

    • Longs were flat over the month at 172k

    • Shorts decreased from 44k to 39k, all of which came in the most recent week

It looks like there is “dry powder” on both sides of the equation. The monthly move was driven by shorts closing, but the weekly move was driven by longs closing.

Figure: 4 Gold Summary Table

Historical Perspective

Looking over the full history of the COTs data by month produces the chart below (please note values are in dollar/notional amounts, not contracts). The chart shows the last run-up in price in 2011, followed by the slow fall into 2015 until the new bull market started in 2016. The response to the Trump election (gold sold off hard) can be seen clearly in the sharp drop-off in late 2016.

This chart also shows how big the “Other” category has become on the long side. In 2011, Other Long had $8.6B in gross long vs $30.6B in the most recent period.

Figure: 5 Gross Open Interest

The CFTC also provides Options data. This has mainly been dominated by Producers, but recently Managed Money has played a larger role within the market. The current period shows a similar trend with Managed Money Longs decreasing from $2.8B to $2.4B during November.

Figure: 6 Options Positions

Finally, looking at historical net positioning shows the correlation of Managed Money positioning with price. The peaks and valleys in price are mirrored in the open interest. The correlation did strongly diverge last year after the March 2020 sell-off. Hedge Funds continued reducing net long positions even while the price rose dramatically. This was probably due to strong ETF buying which won’t show up in the futures.

Note: The correlation will look stronger because price is half of the Notional value equation

Figure: 7 Net Notional Position

Silver

Current Trends

The most recent move in silver was actually driven by Non-Reportables rather than Managed Money. While Hedge Funds were responsible for the drubbing silver took in September, their current net longs stayed relatively stable compared to Non-Reportables.

Figure: 8 Net Notional Position

This can be seen more clearly in the weekly chart. While Hedge Funds did liquidate the last two weeks, they only unwound some of their recent positions. Non-Reportables unwound their entire new position and then some.

Figure: 9 Net Change in Positioning

The table below shows a series of snapshots in time. This data does NOT include options or hedging positions. Important data points to note:

  • Within Managed Money, the monthly change was a modest 1600 decrease and was even positive last week

    • Longs drove most of the move, going from 52k to 54k last week and down to 48k this week

  • As of last week, NonRep had increased net longs by 3k contracts, 4x the movement of Hedge Funds

    • Longs went from 13.9k to 16.9k and down to 13.5k

Figure: 10 Silver Summary Table

Historical Perspective

Looking over the full history of the COTs data by month produces the chart below. The chart shows the last run-up in price in 2011, followed by the slow fall into 2015. The price collapse in silver in 2020 is clearly visible in this chart. As can be seen, gross longs are still well above the 2020 lows.

Figure: 11 Gross Open Interest

The CFTC also provides Options data. This has mainly been dominated by Non-Reportables, exceeding even Producers. Options have fallen off significantly from the spike last July and is still well below the peak in 2011.

Figure: 12 Options Positions

Finally, looking at historical Net positioning shows the correlation of positioning with price. Similar to gold, the peaks and valleys in price are mirrored in the open interest. Again, the latest pop did not generate the price increase that would have been expected given the magnitude of the move.

Figure: 13 Net Notional Position

Conclusion: How Will Hedge Funds Respond to the Fed?

Hedge Funds certainly trade using technical analysis, which is why Fib targets and round numbers (e.g. $1,800) prove to be such difficult resistance points. Over time, the physical market has pushed prices up, but the short-term move is dominated by hot money. How long until Hedge Funds call the Fed’s bluff? More importantly, how long until there isn’t any physical to back the paper contracts because it’s been delivered and then removed from the vault?

Astute investors should keep the long-term picture in mind. The short-term gyrations can be immensely frustrating, but gold and silver are not Bitcoin. They are not vehicles to get rich quick because that would disqualify them as safe-havens. Remember, what goes up quickly, can come down quickly. Stay the course, trust the fundamentals, use the CFTC analysis to explain the short-term price movements, and understand the protection provided by physical precious metals.

Tyler Durden
Sun, 12/05/2021 – 11:30






Author: Tyler Durden

Precious Metals

Fresnillo (OTCMKTS:FNLPF) Rating Lowered to Sector Perform at Royal Bank of Canada

Fresnillo (OTCMKTS:FNLPF) was downgraded by stock analysts at Royal Bank of Canada from an “outperform” rating to a “sector perform” rating in…

Fresnillo (OTCMKTS:FNLPF) was downgraded by stock analysts at Royal Bank of Canada from an “outperform” rating to a “sector perform” rating in a research note issued to investors on Thursday, The Fly reports.

Several other equities research analysts have also issued reports on the company. Scotiabank reaffirmed a “sector perform” rating on shares of Fresnillo in a research report on Wednesday, October 13th. Jefferies Financial Group lowered Fresnillo from a “buy” rating to a “hold” rating in a research report on Thursday. Zacks Investment Research lowered Fresnillo from a “buy” rating to a “hold” rating in a research report on Wednesday, January 19th. Morgan Stanley reaffirmed an “equal weight” rating on shares of Fresnillo in a research report on Wednesday, September 29th. Finally, JPMorgan Chase & Co. reaffirmed a “neutral” rating on shares of Fresnillo in a research report on Thursday, October 28th. Nine equities research analysts have rated the stock with a hold rating and one has assigned a buy rating to the stock. Based on data from MarketBeat.com, the company currently has an average rating of “Hold” and an average price target of $13.00.

OTCMKTS FNLPF opened at $8.60 on Thursday. The business has a fifty day simple moving average of $11.53 and a 200 day simple moving average of $11.51. Fresnillo has a 12 month low of $8.36 and a 12 month high of $16.14. The company has a debt-to-equity ratio of 0.31, a current ratio of 4.98 and a quick ratio of 4.11.

Fresnillo Company Profile

Fresnillo Plc is a holding company, which engages in the production of gold and silver. It operates through the following segments: Fresnillo, Saucito, Cienega, Herradura, Soledad-Dipolos, Noche Buena, and San Julia. The Fresnillo, and Saucito segments are located in the state of Zacatecas, an underground silver mine.

Recommended Story: How can investors invest in the S&P/TSX Index?

The post Fresnillo (OTCMKTS:FNLPF) Rating Lowered to Sector Perform at Royal Bank of Canada appeared first on ETF Daily News.

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Alamos Gold: Haywood Lowers Target To $12.75 Following 2022 Guidance

Last week, Alamos Gold Inc. (TSX: AGI) reported its fourth quarter and full-year production results, as well as their 2022
The post Alamos Gold: Haywood…

Last week, Alamos Gold Inc. (TSX: AGI) reported its fourth quarter and full-year production results, as well as their 2022 to 2024 production estimates.

For the fourth quarter, Alamos Gold produced 112,500 ounces of gold, bringing the full year 2021 production to 457,200 ounces, which was the lower range of guidance. Costs have not yet been finalized but the company says that it is expected to be consistent with their guidance.

The company also provided 2022 guidance, which included expected gold production of 440,000 to 480,000 ounces. Cash costs are expected to be between $875 to $925 per ounce and all-in sustaining costs are to be between $1,190 to $1,240 per ounce. Total capital expenditures will be between $305 and $345 million, while exploration is expected to cost $27 million for 2022.

For the longer run, the company expects these numbers to grow to 460,000 to 500,000 ounces of gold in 2024, with cash costs of $650 to $750 per ounce and $950 to $1,050 of all-in sustaining costs per ounce.

Currently Alamos Gold currently has 13 analysts covering the stock with an average 12-month price target of C$12.46, or a 36% upside to the current stock price. Out of the 13 analysts, 1 has a strong buy rating, 6 have buy ratings, 5 have holds and 1 analyst has a sell rating. The street high sits at C$17.50 or a 91% upside to the current stock. While the lowest price target sits at C$9.98.

In Haywood Capital Markets’ note, they reiterate their buy rating but lower their 12-month price target from C$15 to C$12.75, saying, “lower production and higher costs for 2022,” and that inflation is finally starting to impact the production costs.

For the fourth quarter and full-year production numbers, they came in line with Haywood’s estimates although they note that the full-year production numbers came in the lower half of guidance.

For the companies three-year guidance, Haywood expected 2022 production to be 485,000 ounces, below their high-end figure. While cash costs were expected to be $785 per ounce, lower than their guided number. This is the same for all-in sustaining costs as Haywood expected it to be $1,055 per ounce. Haywood says that this cost increase in 2022, “is due to industry-wide cost inflation as well as temporary higher costs at Mulatos.”

Below you can see Haywood’s estimates versus the company’s guidance.


Information for this briefing was found via Sedar and Refinitiv. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

The post Alamos Gold: Haywood Lowers Target To $12.75 Following 2022 Guidance appeared first on the deep dive.



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S&P Suffers Worst Start To A Year Since 1939 As Yield Curve Yells ‘Recession’

S&P Suffers Worst Start To A Year Since 1939 As Yield Curve Yells ‘Recession’

Before we start, let’s make this clear right from the start…

S&P Suffers Worst Start To A Year Since 1939 As Yield Curve Yells ‘Recession’

Before we start, let’s make this clear right from the start – despite today’s panic-buying, this is the worst start to a year for the S&P 500 since 1939 (and on course for its worst January ever)…

Nasdaq is down 5 straight weeks (16% from its highs) – the longest losing streak since 2012 – while Small Caps are down 22% from their highs (in a bear market)

Source: Bloomberg

Everything was going so well too… “smooth sailing” they said! “Fed Put” they said! “Transitory inflation” they said…

Today was just a little bit turbo as it seems ugly sentiment data (10 year lows) and plunging growth expectations (Q1 GDP forecasts collapsed), was the ‘bad news’ the dip-buyers needed to reassure themselves that uber-hawkish Powell wouldn’t execte on his plan to crush inflation into a recessionary environment. We have one word for them – stagflation, and it leave Powell in an ugly box.

Atlanta Fed GDP expectations crashed to zero for Q1…

Source: Bloomberg

And as that happened, rate-hike expectations shifted dovishly lower (modestly at the time)…

Source: Bloomberg

Which helped send stocks soaring (particularly hyper-growth, long duration stocks). But that all came to an abrupt end at 1400ET today (for no obvious reason)… which was immediately met with a wall of dip-buyers amid the total lack of liquidity. Then all the majors just went vertical into the last 10 minutes as a significant buy-imbalance appeared (all helped by AAPL’s explosive gains today). Nasdaq was up a shocking 3% today (from down 1% pre-open). The S&P was up 2.5% today (from down 1% pre-open). Russell 2000 closed up almost 2% today from down 2% pre-open…

As one veteran trader noted, “today was a shitshow, no liquidity, gamma-driven gappy jumps everywhere… it was all algos and no average joes.”

Well that idiotic rampage managed to get the Dow, S&P, and Nasdaq unchanged on the week (which appears to be all that mattered to the machines)…

Just look at the volatility (but Monday’s puke lows held… and so did Wednesday’s pre-Fed highs).

Growth stocks were flat on the week as Value was bid (mostly benefitting on Thursday)…

Source: Bloomberg

Both Defensive and Cyclical stocks were hammered equally this week (while obviously cyclicals were more volatile)…

Source: Bloomberg

Today’s bounce was not really triggered by a short-squeeze as the size of the swing higher is very modest and unsustained…

Source: Bloomberg

The energy sector is the only one up in January while Tech and Consumer Discretionary are down hard MTD…

Source: Bloomberg

Real yields continue to rise (to their highest since June 2020 – but still negative), and have recoupled with gold…

Source: Bloomberg

…but have completely decoupled from stocks (Nasdaq should be significantly lower relative to Russell 2000)…

Source: Bloomberg

Notably, if real yields keep rising, then valuations are going to come under significant pressure…

Credit markets saw very little of the chaotic chop in stocks this week as they just fell with HYG (HY Corporate Bond ETF) at its lowest since Nov 2020…

Source: Bloomberg

Treasury yields were extremely mixed on the week with the short-end exploding higher and long-end actually coming all the way back to unchanged…

Source: Bloomberg

This week saw 2Y yields jump most since Oct 2019 (up for the 6th week in a row to the highest since Feb 2020).

Source: Bloomberg

The yield curve was crushed this week, triggered by The Fed’s hawkish tilt…

Source: Bloomberg

…with 7s10s at almost record flats, 20s30s still inverted, and 2s30s at its flattest since March 2020… all screaming The Fed is about to make a big mistake and hinting strongly at recessionary risks rising fast…

Source: Bloomberg

Short-term markets are now fully pricing in 5 rate-hikes by year-end (and a 25% chance of 50bps hike in March)

Source: Bloomberg

Perhaps even more notably, the forward OIS market is pricing in rate-cuts between 2024 and 2025…

Source: Bloomberg

The dollar soared higher for the 5th straight week (best week since June 2021), closing at its highest since July 2020. NOTE, the dollar took out the December USD spike highs and faded…

Source: Bloomberg

Cryptos had a nasty drop on Monday, along with stocks, and another puke after The Fed, but bitcoin ended the week modestly higher, while Ether was down around 5%…

Source: Bloomberg

Commodities were very mixed this week with most lower by hawkish tilts (Silver slammed 8% on the week) while crude rallied on geopolitical tensions…

Source: Bloomberg

Silver dropped back below $23…

WTI came very close to $89 intraday during the week, its highest since Oct 2014 (up for the 6th straight week in a row)…

NatGas went supersonic this week amid chaotic settlement and a new cold front, breaking above the early Jan highs (and up 19%, its best week since Aug 2020)…

Finally, just in case you think the market can handle all this vol, think again – liquidity in the most-liquid global equity futures contract (ES) is at its lowest since the COVID crash in 2020…

Simply put, a moderate-sized order moves ES 10 ticks so how do you think it’s going to handle all the fintwit/tiktokkers “paper hands” puking out of their Robinhood accounts?

The good news is that US COVID cases are following the same trajectories at UK and South Africa and tumbling…

Source: Bloomberg

Nevertheless, as we noted above, GDP in Q1 could well print contractionary.

Tyler Durden
Fri, 01/28/2022 – 16:02









Author: Tyler Durden

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