Seeking alpha

by Brad Zigler

What was simply buyers' exhaustion is now turning into a reversal for futures fund managers. Money runners — commodity trading advisers and hedge fund traders — who were heavily skewed to the buy side in gold, started bailing from their long positions two weeks ago. We chronicled the exodus in "Gold: Shootout At The 24K Corral" and "What's With The Gold ‘Strength Index'?".

At first, traders were content just to abandon the gold market. As of July 13, 118 funds held long futures positions while 24 were short. A week later, 107 long accounts remained. The short side only picked up one. This past week, though, when 17 funds liquidated their long positions, nine players switched sides to go short. There haven't been this many funds short since November 2008.

Granted, these aren't large short positions. Money managers are still net long — and, at better than 154.000 contract equivalents, by a sizable margin. But, less than 73 percent of them are long now, down from 87 percent just a month ago. The ratio hasn't been this low since April 2009.

Clearly, the speculative gold segment has been rejiggered over the past couple of weeks. The backdrop to this has been liquidation. The market's gotten notably smaller, shedding 7.7 percent of its open interest. The closeout has been universal, as commercially — the usual counterparties to fund managers' trades — have peeled away as well.

This week's question is whether a bullish recovery or a bear run is being set up. The past couple of trading sessions have featured bargain-hunting buying as gold prices neared their 200-day moving average. That average has been a rallying point for gold bulls over the 18 months.

One thing is certain: The next couple of trading sessions will be critical in setting gold's course over the intermediate term. Stay tuned. You won't want to miss a minute of the action.

http://seekingalpha.com/article/218045-gold-money-managers-migrating-to-short-side