Home Hedge Funds Hedge funds still bullish on gold but market faces challenging environment

Hedge funds still bullish on gold but market faces challenging environment


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(Kitco News) – Although volatility has picked up in the last few days, market analysts say that, in general, the gold market is waiting for a catalyst to push the precious metal out of its narrow trading range.

The latest trade data from the Commodity Futures Trading Commission shows that hedge funds remain relatively neutral on gold and are not taking any significant bullish or bearish positions. Analysts have said that gold remains caught in a tug of war between rising inflation and aggressive interest rate hikes from the Federal Reserve.

The Federal Reserve is on track to raise interest rates by 50-basis points later this week and make another similar move in July. However, inflation remains a major threat to the economy. The U.S. Consumer Price Index rose 8.6% for the year in May, a new 40-year high.

“The macro picture —with the Fed and BOE set to hike rates and the hawkish spin from the ECB —might be expected to weigh on gold, but the inflation story may keep the gold bears at bay,” said Marc Chandler, Managing Director Bannockburn Global Forex, in a recent comment to Kitco News.

The CFTC disaggregated Commitments of Traders report for the week ending June 7 showed money managers increased their speculative gross long positions in Comex gold futures by 2,484 contracts to 115,215. At the same time, short positions fell by 4,254 contracts to 57,684.

Gold’s net length now stands at 57,531 contracts, up 13% from the previous week. During the survey period, gold prices traded in a narrow range on either side of $1,850 an ounce.

Analysts at TD Securities have warned that gold prices could push lower and possibly retest support around $1,800 as there are a lot of “complacent longs” still in the marketplace.

“Net length in the gold market remains fairly sticky, with additional length added and modest shorts covering. Indeed, with the Fed’s next moves well telegraphed, the cohort of discretionary traders who have become more prominent since the pandemic era, are reluctant to be shaken out with the post-September Fed path unknown amid growing recession concerns,” the analysts said. “While this dynamic has seen gold prices remain firm in the face of a strong dollar and rising rates, we still think the yellow metal will ultimately succumb to the Fed’s fight against inflation.”

Although gold prices could trend lower, many analysts remain optimistic that gold can move higher in the long term. There is growing doubt that the Federal Reserve will be able to get inflation under control.

Ole Hansen, Head of Commodity Strategy at Saxo Bank, said that rising stagflation fears and further weakness in equity markets will continue to support gold prices.

“Gold is relatively unchanged on the year, but it continues to outperform equities, so I am happy with its performance,” he said. “The Federal Reserve is running out of time if it wants to get inflation under control. I don’t think they want to risk pushing the economy into a recession.”

Silver continues to attract investors, albeit at a relatively slow pace.

The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures fell by 334 contracts to 40,650. However, short positions also fell by 4,115 contracts to 33,818.

Silver’s positioning is net long 6,832 contracts, up 132% from last week’s low levels. During the survey period, silver prices traded around $22 an ounce.

Although silver could struggle in gold‘s shadow as a monetary metal, some analysts have said that industrial demand will continue to support prices.

Looking at industrial metals, hedge funds jumped solidly back into the copper market as demand out of China continues to improve.

Copper’s disaggregated report showed money-managed speculative gross long positions in Comex high-grade copper futures rose by 4,227 contracts to 44,270. At the same time, short positions fell by 11,561 contracts to 40,154.

Speculative positioning in the copper market turned net bullish for the first time in five weeks. During the survey period, copper prices tested resistance below $4.50 per pound. Despite the new bullish momentum, commodity analysts at TD Securities are not convinced the trend is sustainable.

“Copper speculators continued to add to their length, adding longs and aggressively covering shorts this week as optimism surrounding Shanghai’s reopening fueled a sharp rally in low liquidity sessions. However, China’s reopening was old news,” the analysts said. “The trading regime in base metals has morphed into a sell-rallies regime, and we remain tactically short in LME1m copper in this context.”

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.

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