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Hedge funds dump gold, but bears are still hiding

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(Kitco News) - A rise in investor optimism and thawing trade tensions between the U.S. and China prompted hedge funds to take profits in their gold holdings, but they are reluctant to place bearish bets on the precious metal, according to the latest trade data from the Commodity Futures Trading Commission.

The CFTC's disaggregated Commitments of Traders report, for the week ending Sept. 10, showed money managers dropped their speculative gross long positions in Comex gold futures by 25,700 contracts to 239,475. At the same time, short bets fell by a much slower pace, falling by 255 contracts at 33,294. Gold's net-long positioning currently stands at 206,181 contracts, a decline of nearly 11% from the previous week.

“Gold, the safe haven metal, suffered its biggest week of selling since April after the trade war pendulum swung back to positive thereby driving demand for equities and selling of bonds,” said Ole Hansen, head of commodity strategy at Saxo Bank.

The long liquidation, due to improved risk-on sentiment, caused gold prices to fall below $1,500, a one-month low and a 4% drop from a six-year high.

“Indeed, as Fed cut optimism ebbed, reports of a potential cease-fire on trade, along with a disappointing narrative from the ECB amid discord within the central bank, all conspired to send gold prices sharply lower,” said commodity analysts at TD Securities.

However, although analysts see room for more profit taking in the gold market, they note that ongoing uncertainty will limit bearish views in the marketplace.

Hansen noted that the gold market is still holding strong support above initial resistance at $1,485 an ounce. He added that hedge funds are not “no hurry to exit the market amid continued growth and geopolitical concerns.”

Analysts at TD Securities noted that expected looser global monetary policy will continue to support gold prices in the long run.

“We think gold will increasingly look like an attractive asset to both money managers and central bankers, which should see allocations to the yellow metal continue to firm in the coming weeks,” they said.

While money managers are holding on to their gold investments, they are lowering their exposure to silver.

The disaggregated report showed money-managed speculative gross long positions in Comex silver futures fell by 2,728 contracts to 83,812. At the same time, short positions dropped by 1,432 contracts to 24,226. Silver's net length currently stands at 59,586 contracts 3% from the previous week.

During the survey period, silver prices fell nearly 10% from a two-year high and tested support around $18 an ounce.

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