Hope for short squeeze is growing
The futures markets are known to trade much higher gold than the cash markets, but only on paper rather than in physical form. Futures & options thus have a particularly strong influence on the gold price .
As a reminder, a gold future moves the equivalent of 100 troy ounces of gold (current value: $ 123,000 as of: 10/22/2018). So if you buy (sell) a gold contract, you would get $ 1,000 richer (poorer) if you see a $ 10 rise in gold prices .
In order to be allowed to bet, one must deposit however a certain margin of security (margin). However, if the price of gold massively in the “wrong” direction, you have nachschießen more capital. If this does not happen, the position can be “forced liquidated”.
Conclusion: Here it is less about crisis, asset or inflation protection, but above all speculation with the character of a bet (see table).
Facts about trading gold futures on the commodity exchange
|100 troy ounces
|Trading Time (USA, Central Time):||Sun (5.00 pm) to Fri (4.00 pm)|
|Number of open contracts:||472,903 (19.10.2018)|
|Turnover Gold Futures:||192.180 (19.10.2018)|
|Collateral per contract (margin):||3,400 USD|
Source: CME Group
The events on the futures markets should still be watched with eagle eyes. For example, once a week, the US regulator Commodity Futures Trading Commission (CFTC) informs about the current sentiment on Comex.
The Commitments of Traders Report (CoT ) lists the long and short positioned futures of the main groups of market participants. These are players from the gold industry (commercials) as well as non-commercials and non-reportables.
One thing was particularly noticeable this year: a huge sell-off was observed among big appointment speculators. Judging by this one can attest to the gold price almost relative strength.
Big speculators are more optimistic again
Thus, since Jan. 23, the net long position (mostly optimistic) of large speculators totaling 214,000 futures has completely vanished and into a net short position (mostly pessimistic) of negative until October 9 38,000 contracts transformed.
As a result, the number of long-positioned futures fell to its lowest level since February 2016, while the short exposure of almost 218,000 contracts even reached the highest level since August 2008, when the US investment bank Lehman Brothers was still solvent.
The massive sentiment reversal from January to October was caused by a 126,000 reduction in the long side and nearly 127,000 futures on the short side.
In the current CoT report published on Friday, the first signs of relaxation were announced. The lousy mood among the big speculators has turned completely. On a weekly view, its net short position of minus 38,200 contracts has turned into a net long position of plus 17,700 futures. If the gold price continues to trend upwards, it could come to a so-called short-squeeze.
That is, the pessimists are forced to close their short positions to limit losses.
The gold price would then have to help in much higher regions.
Outlook for the current week
Statistically, September is the seasonally weakest month for equities in the US and Germany, but so far this year, October has been relatively disappointing. This has helped the gold price after a several-month decline at least a bit on its feet.
However, the negative correlation to the asset class shares, which the yellow precious metal has said has not really worked out so far. Obviously, stockbrokers are not worried about the future prospects of equities, despite the recent technical correction.
Europe is concerned not only with geopolitical trouble spots and the future development of world trade, but also with the impending disorderly Brexit and debt sustainability of Italy.
On Thursday, this issue should also be dealt with at the ECB press conference after the central bank’s interest rate decision. Italian-born ECB chief Mario Draghi should be able to assess this problem particularly well. Now it remains to be hoped that he can accompany his solution without bias.