May 6, 2011, 6:40 p.m. EDT
Smart money left silver to tarnish retail buyers
Hedge funds, other large players cooled speculative bets before metal’s crash
SAN FRANCISCO (MarketWatch) — Retail buyers may have stayed invested in silver long after most hedge funds and other large investors had left, data from U.S. futures regulators suggest.
Data from the U.S. Commodity Futures Trading Commission shows money managers’ bets that silver prices would go higher declined starting mid- February, when silver prices started to climb in earnest following a lull in late January.
The trend suggests the so-called ’smart money,’ the large managed funds that report to the CFTC, had started to back away from silver and “retail investors picked up the slack,” said Tom Pawlicki, a precious metals analyst with MF Global in Chicago.
The CFTC data for gold, in contrast, show steady support from money managers in the run-up to this week’s drop.
Silver hit a string of 31-year highs for most of the year, but the rally came to an abrupt end this week, when repeat margin-requirement increases squeezed out those unwilling or unable to put up more money to trade the metal.
The iShares Silver Trust SLV +2.25% , an exchange-traded fund that holds silver, has fallen 26% this week, paring its year-to-date gain to 14%.
Silver for July delivery SIN11 +1.78% ended Friday’s session down 2.6% to $35.29 an ounce, bringing its weekly loss to 27%, its worst week for the metal since the 1980s. Read more about metals.
Often said to be the poor man’s gold, silver still is mostly the realm of retail investors. Such investors felt the pinch of this week’s increased margin requirements, or the money investors must put up to be able to trade.
Such requirements will have risen 84% by Monday, when the last of the announced increase comes into effect.
'Dumb money' flow into oil
Dan Dicker, author of "Oil's Endless Bid," tells MarketWatch's Steve Gelsi that oil markets are hindered by speculative trading and blames the Commodities Futures Modernization Act for bringing too much "dumb money" into oil trading.
For silver, net long positions hit their most recent peak the week of Feb. 15, with nearly 41,000 positions. Net longs in silver hit a record 70,127 positions in December 2004.
From February, however, net longs, or bets silver prices will go higher, have mostly come down. The latest week, ended May 3, shows managed-money net longs at 23,400 contracts, from 23,243 contracts the last week of April.
Investors are likely to parse the next week’s report closely, as it will cover some of the worst days for silver prices this week.
Analysts see the CFTC data, called the Commitment of Traders, as a useful tool to gauge investor sentiment, although often only in hindsight.
Big investors have stayed more committed to gold. Managed-money net longs in gold have hemmed in close to a midpoint in their range in the last two years, Pawlicki said.
Net long positions for the latest week were nearly 193,000 contracts, from 207,500 contracts the week before. Gold net-long contracts hit a record 262,331 the week of November 2009.
Gold is likely to move slightly higher next week, “benefitting from continued angst surrounding sovereign debt and inflation after (Friday’s) payrolls pointed to a strengthening U.S. economy,” said Bart Melek, head of commodity strategy with TD Securities in Toronto.
“Plus, the correction went too far and not much has changed on the monetary front,” he added.
Gold rebounded Friday, with the June contract GCM11 +0.32% adding $10.20, or 0.7%, to settle at $1,491.60 an ounce. Gold has lost 4% from a record $1,556.40 an ounce last Friday.
Claudia Assis is a San Francisco-based reporter for MarketWatch.
All information on this website is for educational purposes only and is not intended to provide financial advise. Any statements about profits or income, expressed or implied, does not represent a guarantee. Your actual trading may result in losses as no trading system is guaranteed. You accept full responsibilities for your actions, trades, profit or loss, and agree to hold MinKL Invest harmless in any and all ways.
No comments:
Post a Comment