Hedge Funds Liquidate Bullish Gold Bets, As Dollar, Bond Yields Rise
(Kitco News) - Hedge funds are liquidating their gold investments as the market struggles in an environment of rising bond yields, a stronger U.S. dollar and easing geopolitical tensions, according to analysts, quoting the latest data from the Commodities Futures Trading Commission.
The increased selling pressure pushed gold prices to the bottom of its well-established trading range to a one-month low.
The CFTC's disaggregated Commitments of Traders report for the week ending April 24, showed money managers reduced their speculative gross long positions in Comex gold futures by 14,667 contracts to 143,258. At the same time, short bets rose by 18,310 contracts to 43,597. Gold's net length currently stands at 99,661 contracts, its lowest level since late-December.
Gold's net length declined 24% from the previous week. The selling pressure caused the price to drop 1.2% during the survey period.
"Fears of a hawkish Fed, the ten-year yield approaching 3% and a strengthening of the US dollar convinced investors to sell the shiny metal as it neared the top of the range near $1,355/oz, taking it to a low of $1,315/oz this week," said commodity analysts at TD Securities.
However, the analysts added that they don't expect gold prices will break below its current trading range as the Fed will strike a cautious tone Wednesday to prevent a significant rout in bond yields.
Looking ahead, analysts at Commerzbank said that they expect hedge funds have further liquidated their gold investments as the price as dropped to nearly a two-month low.
However, Eugen Weinberg, head of commodity research at Commerzbank, said that while there is little reason to hold gold in the near-term, many investors will be reluctant to sell more gold in the current market environment.
"There are still a lot of bullish factors that make gold an attractive long-term investment," he said in a recent interview with Kitco News.
While hedge funds have been bearish on gold, the trade data showed that sentiment is shifting in silver.
The disaggregated report showed money-managed speculative gross long positions in Comex silver futures rose by 6,607 contracts to 46,448. At the same time, short positions fell by 12,350 contracts to 42,248. The short-covering in the marketplace pushed silver net positive for the first time since early February. Silver's net length currently stands at 4,200 contracts.
The short covering helped push the silver price briefly above $17 an ounce, but the gains were unstainable and when the dust settled the market saw a 0.5% decline during the survey period.
Ole Hansen, head of commodity strategy at Saxo Bank said that higher inflation pressures helped silver rally alongside base metals.
Looking ahead, Jonathan Butler, precious metals strategist at Mitsubishi Corporation, said that despite the drop in bearish bets, there is still a significant short position in the marketplace that could ultimately push prices higher in the long term.
"Our medium to longer term view remains that both silver and gold should benefit from risk/inflation hedging," he said.