(Kitco News) – The latest trade data shows hedge funds continue to pile into gold and silver, and while prices have pushed significantly higher, some analysts have said that the precious metals still have room to move higher.
Commodity Futures Trading Commission disaggregated Commitments of Traders report for the week ending April 2 showed money managers increased their speculative gross long positions in Comex gold futures by 10,067 contracts to 173,073. At the same time, short positions fell, dropping by 1,218 contracts to 25,993.
The gold market is currently net long by 147,080. Bullish speculative positioning has reached its highest level since early March 2022; however, positioning has remained largely flat for the last three weeks and is still well under its highs reported in 2019.
In a note Monday, Mike McGlone, Senior Market Strategist at Bloomberg Intelligence, said that gold’s positioning is not yet overextended.
“At about 36% of open interest, managed-money net longs in the metal are still well below typical too-long extremes around 48%, but the recent breakout above 28% may be more important. Reflective of the extent of bullish disfavor, hedge fund net longs remained under this threshold since gold first traded $2,000 an ounce in August 2020 — the longest period in our database from 2006,” he said.
During the survey period, gold prices hit all-time highs above $2,300 an ounce. Since then, the price has pushed to a new record high above $2,350 an ounce.
Analysts note that along with record-high prices, this run remains unprecedented as both gold and silver have defied higher bond yields and resilient strength in the U.S. dollar. Bond yields and the U.S. dollar have remained elevated as the Federal Reserve remains pretty cagey when it comes to potential rate cuts this year.
Some analysts have warned that gold’s run in blue-sky territory against these headwinds poses risks for investors.
“Money managers modestly increased their gold length as prices continued to rise to new all-time highs. Under the hood, this suggests that macro traders have now built a slight overweight relative to rates market expectations, which partly reflects the fact that they have held onto their gold despite slumping expectations for Fed cuts, and partly points to the fact that they have marginally added to their gold length over this timeframe,” said analysts at TD Securities in a note Friday.
However, other analysts said that the speculative momentum indicates new factors driving prices. Some analysts note that the Federal Reserve’s Restrictive monetary policy threatens economic growth. At the same time, surging government debt is weighing on the purchasing power of the U.S. dollar, supporting higher inflation pressures.
“We may slowly be seeing a change in the gold supportive narrative to sticky inflation and a couple of cuts instead of a succession of rate cuts in a low inflationary environment,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said in a comment to Kitco News.
McGlone also noted that recession fears could remain fairly elevated with gold’s price performance beating the S&P 500.
“The rock beating stocks may be sniffing out a recession,” he said.
Other analysts note that traditional Western demand is less critical to gold than Eastern demand. Specifically, Chinese investors continue to invest in gold as their ability to hedge against economic risks and diversify their portfolio remains fairly limited.
Monday, the premium for physical gold on the Shanghai Gold Exchange hit a record of $40 an ounce versus benchmark prices set by the London Bullion Market Association, which also hit a record.
Adding to the bullish sentiment in the marketplace, gold is not alone in this rally. After a slow start, silver is starting to make a move and is outperforming the yellow metal.
The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures rose by 3,992 contracts to 57,863. At the same time, short positions rose by 630 contracts to 24,562.
Silver’s net length now stands at 33,301 contracts, up modestly from last week’s sharp decline. During the survey period, silver prices broke resistance at $26 an ounce. Since then, prices have pushed even higher, starting the new trading week at a two-year high of around $28 an ounce.
Last week, silver prices saw significant momentum, which helped push the gold-silver ratio to its lowest level this year, below 85 points.
Some analysts note that not only is silver an attractive value play against gold, but because of its industrial usage, it can be a more effective hedge against inflation.
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