(Kitco News) – According to many analysts, there is still plenty of value left in the gold market, even as the latest trade data shows speculative bullish positioning reached a two-year high after hedge funds went on an unprecedented buying spree.
The Commodity Futures Trading Commission’s disaggregated Commitments of Traders report showed money managers increased their speculative gross long positions in Comex gold futures by 28,888 contracts to 1,73,994 for the week ending March 12. At the same time, short positions fell by 2,432 contracts to 32,911.
The gold market is currently net long 141,083 contracts, its highest level since early March 2022. During the survey period, gold prices surged to an all-time high just above $2,200 an ounce.
Ole Hansen, head of commodity strategy at Saxo Bank, noted that in the last two weeks, hedge funds have bought 285 tonnes of gold.
In a comment on social media, Hansen added that despite the unprecedented buying, gold’s overall positioning relative to open interest remains within range.
“The long/short ratio has reached a 10-month high at 6.2, near the upper end of the range that followed the March 2020 spike,” he said.
#Gold – While spec buying of #GC_f has been very aggressive (91.5k) during the past two reporting weeks, the overall position relative to open interest remains well within range. The long/short ratio has reached a 10-month high at 6.2, near the upper end of the range that… https://t.co/rssVerzrN0 pic.twitter.com/VMV6WInvGw
— Ole S Hansen (@Ole_S_Hansen) March 18, 2024
Other analysts have noted that despite the recent buying, speculative positioning is still well below levels seen in 2020.
Fred Hickey, creator of The High-Tech Strategist investment newsletter, commented on social media that gold’s current net length has been a “danger zone” for the market in the last four years as it has attracted some selling and profit taking. However, he also noted that in previous bull markets, bullish bets went 50% to 100% higher.
Although gold’s overall positioning is elevated, other analysts note that, in relative terms, it remains fairly undervalued. In a recent interview with Kitco News, Michele Schneider, director of trading education and research at MarketGauge, said that gold is still cheap relative to the overall stock market.
She pointed out that the Dow Jones Industrial Average is somewhat elevated compared to the lows hit following the 2008 Great Financial Crisis.
“Relative to its growth potential, gold looks cheap,” she said.
At the same time, many investors also note that speculative positioning is a stark contrast compared to investment demand in gold-backed exchange-traded products. Although generalist investors have been late to the rally, many analysts have said that a pickup in demand should continue to support prices.
The market is already starting to see a shift as SPDR Gold Shares (NYSE: GLD), the world’s biggest gold ETF, saw its gold holdings grow by nearly 15 tonnes on Friday. This was GLD’s biggest one-day inflow since October 2023.
While gold still has some room to the upside, some analysts have said that this comes with increased risk. Commodity analysts at TD Securities said the market is looking a little exhausted as prices consolidate above $2,150 an ounce.
“Macro trader positioning is now precisely consistent with rates market pricing for the Fed outlook, suggesting the upside asymmetries that enabled the recent rally have now completely dissipated,” the analysts said in a note on Friday.
With the market fully pricing in the Federal Reserve’s current monetary policy stance, TDS said gold could be sensitive to the tone set at this week’s meeting.
“Our advanced positioning analytics suggest CTA trend followers won’t start offloading their ‘max long’ position size until prices break below $2120/oz, which places the onus on [Wednesday’s ] Fed meeting where uncertainty with respect to revisions to the dot plot will be the key focus,” the analysts said.
Plenty of upside for silver
While the gold market may look expensive as prices hold above $2,150 an ounce, many analysts note that there is still plenty of value in the precious metals market, with growing attention now on silver.
Gold’s rally has helped to drag silver prices higher; however, the white metal has not seen the same dramatic interest among speculative investors.
The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures rose by 4,965 contracts to 45,521 At the same time, short positions fell by 6,017 contracts to 19,727.
Silver’s net longs have risen to 25,794 contracts, their highest level since mid-July 2023. During the survey period silver prices managed to break above $24 an ounce.
However, looking at a long-term view, silver’s bullish positioning is down nearly 50% from where it was two years ago when prices were trading above $26 an ounce.
Silver has struggled in gold’s shadow as investors have feared that a potential global recession would weaken industrial demand for the white metal.
However, recent momentum in copper as prices push above $4 per pound is breathing new life into silver, some analysts have said.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
