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Hedge Funds Push Bullish Gold Bets To 2-Year Highs - CFTC

Kitco News

(Kitco News) - The fear of escalating trade tensions evolving into a currency war pushed bullish gold bets to their highest level in nearly two years, according to the latest trade data from the Commodity Futures Trading Commission (CFTC).

Although analysts warn that gold market appears to be significantly overbought, growing fear sentiment continues to support prices currently trading at a more than six-year high.

The CFTC's disaggregated Commitments of Traders report, for the week ending Aug. 6, showed money managers increased their speculative gross long positions in Comex gold futures by 33,106 contracts to 248,687. At the same time, short bets fell by 8,014 contracts to 21,854. Gold’s net-long positioning currently stands at 226,833 contracts, a 22% increase from the previous week.

During the survey period gold prices rose nearly 3% as prices pushed to a six-year high. Analysts expect gold’s net-long positioning has pushed even higher as gold price are now trading above $1,500 an ounce the highest price since April 2013.

Net long or short positioning in the CFTC data reflect 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.

The latest trade data showed that gold’s bullish sentiment is at its highest level since late September 2017.

“This makes gold susceptible to profit-taking, even though we see no reason for investors to take profits in the current market environment,” said analysts at Commerzbank.

Analysts at TD Securities noted that investors started piling into gold en masse after U.S. President Donald Trump threatened to implement a 10% tariff on an additional $300 billion in imported Chinese goods. In retaliation the Chinese central bank let the yuan fall below 7 for the first time in more than a decade.

The analysts added that the latest salvo in the U.S.-China trade war is adding to current fears of a significant global economic slowdown and prompting investors to forecast more interest rate cuts than the Fed is currently expecting.

“With the trade war coming to a boil, rather than a simmer, the market has started to price-in a heavy series of cuts for next year seeing gold surge to multi-year highs,” the analysts said.

Even at gold’s elevated price, analysts at MKS PAMP Group said that they expect to see the market continue to rally and see a price target of $1,520 in the near-term.

“Expect the yellow metal to continue to build momentum as trade tensions between the U.S. and China show no sign of abating over the near term, while global growth concerns and central bank easing cycles add further fuel to the recent rally,” the analysts said.

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