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(Kitco News) – Sentiment is quickly changing 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.
Although the latest Commitment of Traders reports showed a slight increase in bearish sentiment for gold and silver, some analysts noted that the data was looking backwards as prices recovered, trading at a three-week high.
Analysts noted that gold was in relief as investors and traders expected the Federal Reserve to be much more hawkish last week. Analysts said that while the US central bank maintained its aggressive tightening stance, there was little change in its stance.
Federal Reserve Chairman Jerome Powell said the central bank would be apt to slow the pace of rate hikes as the economy begins to respond to its aggressive monetary policy.
“After the massive liquidations seen recently, and after Fedspeak saw the market move away from pricing in a 100bp increase, long positions in the yellow metal quickly recovered as prices broke through the $1,700/oz level. Also, with the Fed raising rates by 75 bp, and Chairman Powell noting that the Fed may slow the pace of its hikes at future meetings, gold bugs got an extra break as the resulting short covering sent prices soaring to the end of the week,” said stock analysts at TD Securities.
The CFTC’s disaggregated trader commitment report for the week ended July 19 showed that money managers increased their speculative gross long positions in Comex gold futures by 1,160 contracts to 92,216. At the same time, short positions rose by more quick clip, with 1,515 contracts to 111,309.
Net short gold positions increased by 19,093 contracts. During the survey period, gold prices briefly fell below $1,700, hitting a one-year low. The gold market has seen an increase in its bearish positioning over the past five weeks. However, analysts noted that gold looks overbought and ripe for a short contraction.
TD Securities said that while prices have room to move higher, they have taken a tactical short position in gold as the market appears overbought following the Fed’s hike.
“We are entering a tactical short position in gold, expecting that the Fed’s reassessment of expectations will worsen the ongoing outflow of the yellow metal, leading to lower prices,” the analysts said.
In a recent interview with Kitco News, Philip Strible, chief market strategist at Blue Line Futures, said he would consider taking profits when gold prices approached $1,800 an ounce.
Strible added that markets may be too early to expect a U.S. central bank turnaround. He noted that recent inflation data showed that consumer prices remained high, which could force the Fed to maintain its aggressive stance longer than expected.
Along with gold, hedge funds remain aggressively bearish on silver. The disaggregated report showed money-driven speculative gross long positions in Comex silver futures rose by 310 contracts to 36,721. At the same time, short positions rose by 4,087 contracts to 54,539.
Silver positioning was net less than 17,818, up 26% from the previous week. During the survey period, silver prices held support at $18 per ounce.
Like gold, silver saw a solid rebound after last week’s rate hike. Although the gold/silver ratio fell from its two-year peak, it remains elevated at around 87 points.
Although silver prices are currently trading firmly above $20 an ounce, some analysts are concerned that the rally is not sustainable as the threat of a recession grows.
A recession would lead to lower industrial use of silver, which accounts for more than 50% of demand for the precious metal.
Disclaimer: The opinions 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 the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. This is not an invitation to exchange goods, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no liability for loss and/or damage arising from the use of this publication.
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