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Dovish Fed Prompts Hedge Funds To Buy Gold - Analysts

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(Kitco News) - Trade data from the Commodity Futures Trading Commission show hedge funds bought gold last week at the fastest pace in four months as members of the Federal Reserve continued to raise concerns over weak inflation pressures in the U.S, according to some analysts.

According to reports, net bullish speculative positioning is at its highest level in 10 weeks.

The disaggregated Commitments of Traders report for the week ending Nov. 28 showed money managers increased their speculative gross long positions in Comex gold futures by 21,226 contracts to 208,518. At the same time, short bets declined by 4,159 contracts to 9,978. Gold’s net length increased to 198,540 contracts. 173155

Gold’s net length increased almost 15% from the previous week. The renewed buying pressure helped to push prices to key resistance just below $1,300 an ounce, as gold rose 1% during the survey period.

Bart Melek, head of commodity strategy at TD Securities, said that hedge funds started to buy gold again after the release of dovish minutes from the last Federal Reserve monetary policy meeting. During the meeting, some committee participants raised concerns about weak inflation pressures and even said that further rate hikes should be put on hold in the current low inflation environment.

“The return of a low inflation narrative, as the minutes revealed many policymakers are concerned that inflation may remain weak for longer than expected, prompted dollar weakness and a flattening of the yield curve,” said Melek. “This saw the opportunity and carry costs of holding the zero-yielding assets reduced, leading to increased interest in the yellow metal.”

Looking ahead, Melek added that he expects to see gold well supported in the near term as hedge funds look for safe-haven investments to protect against escalating geopolitical risks and ongoing drama in Washington D.C.

However, not all analysts are optimistic on gold. Ole Hansen, head of commodity strategy at Saxo Bank, noted the massive one-sided positioning in the marketplace.

“The combination of longs being added and the shorts were reduced helped drive the long-to-short ratio to an uncomfortable high of 21.4 to 1,” he said. “A market this skewed towards higher prices was last seen five years ago.”

While hedge funds see potential in gold, they fled the silver market last week. The disaggregated report showed money-managed speculative gross long positions in Comex silver futures fell by 7,362 contracts to 69,785. At the same time, short positions rose by 676 contracts to 13,238. Silver’s net length now stands at 56,547 contracts.

Silver’s net length decreased more than 12% from the previous week. The long liquidation caused silver prices to fall 1.4% during the survey period.

Disclaimer: The views 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 accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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