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(Kitco News) – For the first time in three years, hedge funds have returned to bearish gold, according to the latest data from the Commodity Futures Trading Commission.
While the gold market is technically oversold, many analysts have said the market’s downward momentum could cause prices to be below $ 1,700 an ounce.
“Investors reduced the net length by a very large 6% of open interest (3 million ounces) as it became very clear that real rates at the short end of the curve will continue to rise and there there was little chance of a rise as nominal policy rates rose and inflation expectations eroded along with the pending economic downturn, “analysts at TD Securities said. “The Fed’s continued rises and lower economic activity should see the length of gold continue to erode, and prices will also remain under pressure in the coming weeks.
The disaggregated CFTC Traders Commitment Report for the week ending July 12 showed that money managers reduced their long speculative gross positions in Comex gold futures by 11,803 contracts to 91,669. At the same time, short positions increased by 11,364 contracts to 97,802.
For the first time since May 2019, the speculative positioning of gold has fallen short in 6,133 contracts. During the survey period, gold prices tested support at around $ 1,700 per ounce.
“The gold market became clearly bearish,” commodity analysts at Société Générale said.
Analysts note that gold continues to suffer as the Federal Reserve maintains its aggressive monetary policy. Last week, markets began assessing the possibility of a total 1% increase in the federal funds rate after US inflation rose to a 40-year high above 9%. However, expectations have fallen again and markets are comfortable with a move of 75 basis points.
Analysts have said the Fed’s aggressive stance could push the U.S. into a recession, creating enough destruction of demand in commodity markets to cool candid inflationary pressures.
SocGen analysts noted that this environment is driving real yields and the U.S. dollar, two big headwinds for gold.
“The DXY index rose 1.44% during the week of July 12 to 108, the highest level since 2002. U.S. real rates rose 13 bp over the same period and have been well above of 50 bp since mid-June, a level that had not been seen sustainably since June 2019, ”analysts said.
The French bank noted that the entire precious metals complex experienced bearish outflows of nearly $ 4.2 billion last week, driven mainly by gold.
According to trading data, hedge funds remain bearish with silver, but are also not aggressively liquidating their bullish bets.
The disaggregated report showed that speculative long gross positions managed with money in Comex silver futures fell by 227 contracts to 37,095. At the same time, short positions increased by 1,476 contracts to 47,543.
Silver positioning is net short of 10,448 contracts, roughly unchanged from the previous week. During the survey period, silver prices fell below $ 19.00 an ounce and tested support at $ 18.00 an ounce.
Analysts point out that silver is much more sensitive to growing fears of recession. Lower economic activity would lead to weak industrial demand for the precious metal. Almost 60% of silver demand comes from industrial applications.
While sentiment remains bearish in silver, some analysts have said it could be the first to recover if sentiment begins to change. There are some preliminary background signs in industrial metals such as copper.
For the first time in four weeks, the depressed copper prices attracted bullish attention from hedge funds.
Copper’s disaggregated report showed that speculative long-term gross positions managed with money on Comex’s high-quality copper futures rose 1,091 contracts to 39,968. At the same time, short positions fell by 7,295 contracts to 58,309.
Positioning in the copper market remains bearish, but its net short position rose to 18,341 contracts, almost 46% more than the previous week.
While there is some optimism in the market, some analysts still see a difficult environment for copper in the short term.
“Our commodity quantifications pointed to red metal as the most vulnerable metal in the complex, showing a strong asymmetry in the face of downward movements in demand signals. Although we believe that demand signals may have been distorted by funds of commodities that hit all of the complex’s assets, the red metal succumbed to major short acquisitions and liquidations over the past week, ”TDS analysts said.
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