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(Kitco News) – Sentiment is shifting rapidly in gold and silver as hedge funds continue to increase their bearish bets ahead of the Federal Reserve’s monetary policy decision last week, according to data from the Commodity Futures Trading Commission.
While traders’ recent commitment reports show a slight increase in bearish sentiment in gold and silver, some analysts are noticing that the data is trending backwards as prices have recovered, trading at a three-week high.
Analysts note that gold is seeing a comfortable rally as investors and traders expected the Fed to be more hawkish last week. Analysts said that although the US central bank maintains its tough tough stance, there has been a slight shift in its stance.
Federal Reserve Chairman Jerome Powell said the central bank would be appropriate to slow the pace of rate hikes as the economy begins to respond to its aggressive monetary policy.
“After recently seen giant liquidations, and with Fedspeak seeing the market move away from pricing a 100 basis point rally, long positions in the yellow metal quickly rebounded after prices breached the $1,700 an ounce level. Furthermore, with the Federal Reserve raising interest rates by 75 basis points, Chairman Powell indicated that the Fed may slow the pace of its rally in future meetings, and the gold bugs took more comfort as short-covering drove prices higher through the end of the week, commodity analysts at TD Securities said.
CFTC’s Detailed Commitments of Traders Report for the week ending July 19 showed money managers increased their total speculative long positions in Comex gold futures by 1,160 contracts to 92,216. Meanwhile, short positions rose at a faster rate by 1,515 contracts, reaching 111,309 contracts.
Gold net short positions increased by 19,093 contracts. During the survey period, gold prices briefly fell below $1,700, hitting their lowest level in one year. The gold market has seen an increase in its bearish situation over the past five weeks. However, analysts noted that gold appeared to be overbought and ready for a short squeeze.
TD Securities said that although prices have room to run, they have taken a tactical short position in gold as the market appears to be overbought after the Fed bounce.
“We are entering into a tactical gold sell-off, and we expect the re-pricing of the Fed’s outlook to exacerbate the ongoing outflows in the yellow metal, driving down prices,” the analysts said.
In a recent interview with Kitco News, Philip Strebel, chief market strategist at Blue Line Futures, said he would look at profit-taking as gold prices approached $1,800 an ounce.
Strebel added that markets may be too early to anticipate a pivotal point from the US central bank. He noted that recent inflation data shows that consumer prices remain high, which could force the Fed to maintain its aggressive stance for longer than expected.
Besides gold, hedge funds remain strongly bearish on silver. The detailed report showed that total speculative fund-managed long positions in Comex silver futures rose by 310 contracts to 36,721. Meanwhile, short positions rose by 4,087 contracts to 54,539.
Silver positions net short of 17,818, up 26% from the previous week. During the survey period, silver prices held the support at $18 an ounce.
Similar to gold, silver saw a strong rebound after last week’s interest rate hike. Although the gold/silver ratio is down from a two-year high, it is still high at around 87 points.
Although silver prices are currently trading solidly above $20 an ounce, some analysts are concerned that the rally is unsustainable as the risk of a recession increases.
The recession will lead to a decrease in the industrial use of silver, which accounts for more than 50% of the demand for the precious metal.
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