• 288 days Will The ECB Continue To Hike Rates?
  • 288 days Forbes: Aramco Remains Largest Company In The Middle East
  • 290 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 690 days Could Crypto Overtake Traditional Investment?
  • 694 days Americans Still Quitting Jobs At Record Pace
  • 696 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 699 days Is The Dollar Too Strong?
  • 700 days Big Tech Disappoints Investors on Earnings Calls
  • 701 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 702 days China Is Quietly Trying To Distance Itself From Russia
  • 703 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 707 days Crypto Investors Won Big In 2021
  • 707 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 708 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 710 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 710 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 714 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 714 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 715 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 717 days Are NFTs About To Take Over Gaming?
Tesla Struggles To Compete In European Market

Tesla Struggles To Compete In European Market

Tesla continues to catch the…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

Alasdair Macleod

Alasdair Macleod

Alasdair Macleod runs FinanceAndEconomics.org, a website dedicated to sound money and demystifying finance and economics. Alasdair has a background as a stockbroker, banker and economist.…

Contact Author

  1. Home
  2. Markets
  3. Other

FOMC Minutes Turned The Tide

Gold and Silver this month

Following the release of the Federal Open Market Committee (FOMC) minutes last week, gold and silver have come alive, the gold price rising from a low of $1147 on 18th March to $1200 this morning and silver from $15.46 to $17.00, 4% and 10% increases respectively.

The Commodity Futures trading Commission's (CFTC)Commitment of Traders Report released last Friday conveniently shows the positions of trading categories the night before the FOMC minutes were released. In gold, the Managed Money category sold down their positions to the lowest net long position since December 2013. This is shown in the chart below, with the dotted line representing the average net long position since 2006.

Managed Money net gold contracts

This represents a dramatic turnaround in positions, and it has permitted the Swaps (mostly bullion banks) category to reduce its net short position substantially, shown in the next chart.

Gold Swaps (contracts)

This confirms that the Managed Money category, consisting mostly of hedge funds, was badly wrong-footed ahead of the FOMC release, being very short indeed. In other words, there has been a significant bear squeeze subsequently which has driven the gold price sharply higher.

A simple bear squeeze should be accompanied by a decline in Open Interest, because a bear squeeze forces wrong-footed traders to close their loss-making positions. However, Open Interest has been increasing, which it turns out is entirely due to an increase in spreads[1]. Since Wednesday, Open Interest has declined sharply, which suggests that spread positions have been closed as the April contract runs off the board. This is shown in the next chart.

Gold price

The presence of spreads, which are neither bullish nor bearish, negates the hope that the recent increase in Open Interest is due to genuine demand. Instead, we must conclude that dollar weakness after a period of significant strength has much to do with the rise. Oil prices have rallied strongly as well, having been oversold, confirming that markets so far appear to be only correcting the moves of the last eight weeks.

However, there are fundamental reasons for a more bullish stance for gold, not least the dawning realisation that the FOMC minutes from last week effectively put off interest rate increases indefinitely. Whatever else is a threat to the world's financial credibility, and you could make a very long list of those, the Fed's admission that for the foreseeable future there is no exit from continuing monetary inflation fully justifies a more positive trend for precious metal prices.

The Shanghai Gold Exchange delivered 53.47 tonnes into public hands last week, making a total of 561 tonnes so far this year, a slight increase on last year.


Next week

Monday. UK: BoE Mortgage Approvals, Net Consumer Credit, Secured Lending, M4 Money Supply. Eurozone: Business Climate Index, Economic Sentiment, Consumer Sentiment, Industrial Sentiment. US: Core PCE Price Index, Personal Income, Personal Spending, Pending Home Sales.
Tuesday. Japan: Construction Orders, Housing Starts. UK: Current Account, GDP (3rd Est.), Index of Services. Eurozone: Flash HCIP, Unemployment. US: S&P Case-Shiller Home Price, Chicago PMI, Consumer Confidence. Japan: Tankan Survey.
Wednesday. Eurozone: Manufacturing PMI. US: ADP Employment Survey, Manufacturing PMI, Construction Spending, ISM Manufacturing.
Thursday. UK: CIPS/Market Construction Survey. US: Initial Claims, Trade Balance, Factory Orders.
Friday. US: Non-farm Payrolls, Unemployment.

 


[1] Spreads are matching long and short positions designed to profit from price differentials after financing between different maturities

The views and opinions expressed in the article are those of the author and do not necessarily reflect those of GoldMoney, unless expressly stated. Please note that neither GoldMoney nor any of its representatives provide financial, legal, tax, investment or other advice. Such advice should be sought form an independent regulated person or body who is suitably qualified to do so. Any information provided in this article is provided solely as general market commentary and does not constitute advice. GoldMoney will not accept liability for any loss or damage, which may arise directly or indirectly from your use of or reliance on such information.

 

Back to homepage

Leave a comment

Leave a comment