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Analysts Ask: Is Gold Ready To Rally With Bullish Bets Close To 2.5-Years Low?

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(Kitco News) - Hedge funds continued to shed their bullish gold bets, but some analysts said that there are signs that the selling momentum is starting to fade.

The latest data from the Commodity Futures Trading Commission shows net bullish speculative positioning in the gold market at its lowest level since late-January 2016.

The CFTC's disaggregated Commitments of Traders report for the week ending May 22, showed money managers reduced their speculative gross long positions in Comex gold futures by 11,845 contracts to 91,411. At the same time, short bets fell by 9,378 contracts to 74,880. Gold’s net length now stands at 16,531.

Gold’s net length dropped 12% from the previous week as the selling pressure pushed prices to a new five-month low during the week-long survey period. However, the fact that gold was able to hold critical long-term support above $1,280 an ounce is a sign that the market is oversold, according to some analysts.

Net long or short positioning in the CFTC data reflects the difference between the total number of bullish (long) and bearish (short) contracts. Traders monitor the data to gauge the general mood of speculators, although excessively high or low numbers are viewed by many as signs of overbought or oversold markets that may be ripe for price corrections.

Olen Hansen, head of commodity strategy at Saxo Bank said that the gold market is, “building up for a new upside attempt once the fundamental and/or technical outlook improves.”

Commodity analysts at TD Securities said that continued strength in the U.S. dollar continues to weigh on gold; however, they also see the potential for a recovery in gold in the near-term.

“Between the FOMC minutes striking a dovish tone, and Trump canceling the meeting with North Korea's Kim, the precious metals environment should appear more attractive moving forward,” they said.

While gold is struggling to attract investor interest, the silver market appears to be turning a corner as new bullish bets and short-covering supported prices last week, according to the trade data.

The disaggregated report showed money-managed speculative gross long positions in Comex silver futures rose by 7,347 contracts to 56,388. At the same time, short positions fell by 8,676 contracts to 56,978. Silver's net short positioning currently stands at 590 contracts.

This is the third week that silver has seen a decline in its net short positioning as prices rose nearly 2% during the survey period.

Analysts have been relatively optimistic on silver, but they have also said that investors need to see prices push above $17 an ounce before they jump back into the market.

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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