Gold, silver and copper ready to cover short positions – Analysts

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(Kitco News) – Hedge funds continue to add to their bearish bets on gold. However, analysts say the downside may be limited and the market has become an attractive contrarian move.

The CFTC’s Detailed Commitments of Traders Report for the week ending July 19 showed that money managers reduced total speculative long positions in Comex gold futures by 613 contracts to 91,056 contracts. Meanwhile, short positions rose by 11,992 contracts to 109,794.

Net short positions in gold rose to 18,738 contracts. During the survey period, gold prices tested support at around $1,700 an ounce. The bearish situation is at its highest level since May 2019.

Analysts noted that the gold market was in a strong downtrend as the Federal Reserve aggressively raised interest rates to slow the economy and cool mounting inflation pressures. The central bank is looking to raise interest rates by another 75 basis points on Wednesday. Markets see the potential for interest rates to rise to between 3.50 and 3.75% by the end of the year.

However, many analysts also said that these price hikes have been priced into the market, limiting the downside for gold over the rest of the year. Some analysts also noted that a slowing economy and a possible recession could cause the Fed to slow the pace of rate hikes.

“Any indication that the Fed is softening in raising rates would be good for gold,” said John Hathaway, senior portfolio manager at Sprott Hathaway Special Situations Strategy. “I look at these numbers as an indication of people’s despair. It’s from these low points in terms of psychology that you get these dramatic gatherings.”

Commodity analysts at Société Générale said the gold market has seen $21 billion in a bearish mode since June 21. They also noted that the market is “very vulnerable” to shorting.

Analysts note that the last time gold’s net position was bearish, the market quickly turned around and went on a months-long rally that pushed prices to record highs above $2,000 an ounce.

“[Sentiment] It doesn’t guarantee anything, but with this kind of historical standard, gold is definitely not at the top. Even for a neutral trader, Hathaway said, you might want to pay attention to these things.

But it’s not just gone. Analysts at Societe Generale also see silver as “too vulnerable” to cover short positions.

The detailed report showed that total speculative fund-managed long positions in Comex silver futures declined by 684 contracts to 36,411. Meanwhile, short positions rose by 2,909 contracts to 50,452 contracts.

Silver position is net short of 14,041. Silver prices maintained support at $18 an ounce during the survey period.

The silver market continues to struggle as industrial demand remains weak. Analysts note that 60% of the demand for silver comes from industrial uses.

However, some analysts note that sentiment in industrial metals, as we have seen in the copper market, may be close to bottoming.

The copper detailed report showed that total speculative fund-managed long positions in the high-quality Comex copper futures contract decreased by 1,099 contracts to 38,869 contracts. Meanwhile, short positions fell by 4,904 contracts to 53,405.

This is the second consecutive increase in bullish positions with a total of 14,536 net short bets. During the survey period, copper prices bounced off the support below $3.20 per pound.

“The (domestic) peak in commodity outflows is behind us. Capital is flowing back into broad commodity funds, for the first time in more than a month. This marks the end of the sharpest outflows from this group since 2014, a month after TD commodity analysts said Securities The carnage in the commodities sector has seen outflows outstripping those observed during the covid-19 panic. “Ultimately, base metals are still in a bear market system, but the setup is still ripe for a spike in short coverage.”

Disclaimer: The opinions expressed in this article are those of the author and may not reflect the views of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, Kitco Metals Inc. cannot. Nor does the author guarantee this accuracy. This article is for informational purposes only. It is not a solicitation to conduct any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. does not accept The author of this article will be liable for losses and/or damages arising from the use of this publication.

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