(Kitco News) - Hedge funds took a bigger interest in silver as they increased their bullish bets while increasing their short bets in gold, according to the latest data from the Commodity Futures Trading Commission.

The disaggregated Commitments of Trader report (COT), for the week ending May 10, showed money managers increased their speculative gross long positions in Comex silver futures by 5,720 contracts to 86,732. At the same time, short bets increased by 1,146 contracts to 13,792. The latest data shows the silver market is net long by 72,940 contracts.

Silver’s long bet increased almost 6.7% from the previous week’s level and, according to Ole Hansen, head of commodity strategy at Saxo Bank, hit a new record high. He added that the new record in speculative positioning was made despite falling prices.

During the survey period, Comex July silver futures fell 2%, testing support just above $17 an ounce. Hansen noted that a stronger U.S. dollar last week pressured the entire precious metals market lower.

“The dollar's been treading water for a while but strength is gathering and hitting bullish commodity bet,” he said in a report published Monday.

Phil Streible, senior market strategist at RJOFutures, said that he is not surprised that hedge funds continued to pile into silver as the metal is still undervalued compared to gold. The gold-silver ratio ended the survey period near 74, which is still well above what analysts say is the historical average at 60.

While money managers were positive on silver, they took profits in gold and modestly increased short positions.

The disaggregated COT report showed money-managed speculative gross long positions in Comex gold futures fell by 2,060 contracts to 246,782. At the same time, short positions rose by 5,644 contracts to 35,591. Gold’s net length now stands at 211,191 contracts.

Analysts noted that this is the first time in eight weeks that gold’s net positioning has decreased. Despite the small shift in positioning, gold’s net length remains near its historic highs and only down 3.5% from last week’s level.

“I can understand why investors took profits off the table as the price ran to $1,300 and failed to break through,” said Streible.

Sean Lusk, director of commercial hedging at Walsh Trading, said that although there are bullish factors helping to support the gold market, including concerns over the U.S. economy and weaker global equity markets, he sees gold and silver overextended and “ripe for some profit taking.”

Bill Baruch, senior market strategist with iiTrader, agreed that gold looks overextended; however, the market still has a lot of momentum. He added that as long as prices remain above initial support between $1,264 and $1,270 an ounce, investors will continue to see value in the gold market.

“There’s a lot of speculation in the market but value is being bought so there is still momentum in the market,” he said.

By Neils Christensen of Kitco News; nchristensen@kitco.com

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