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Hedge funds are never far away from gold – analysts

Kitco News

(Kitco News) - Only one week after significant liquidation, shifting sentiment in financial markets is prompting investors to jump back into the gold space, according to the latest trade data from the CFTC.

The CFTC's disaggregated Commitments of Traders report for the week ending Feb. 11 showed money managers increased their speculative gross long positions in Comex gold futures by 7,737 contracts to 231,499. At the same time, short bets fell by 6,324 contracts to 35,828. Gold's net-long positioning currently stands at 195,671 contracts, up nearly 8% compared to the previous week.

During the survey period, gold prices trended quietly higher after holding critical support above $1,550 an ounce.

"The volatility in headline-driven risk appetite and subsequent return of the safe-haven bid was likely the largest driving factor behind the long acquisitions and short covering," said analysts at TD Securities.

Analysts note that gold continues to be an attractive safe-haven asset as fear over the health of the global economy continues to grow as a result of the spreading coronavirus. Although the full impact of the virus is still unknown, economists are starting to lower their expectations for China's gross domestic product.

In a report, Monday, economists at Nomura said that they see the Chinese economy growing by 5.5% in 2020, which will drag down global growth.

"Even if [coronavirus] infections remain largely confined to China – our base case and bad scenario – do not underestimate the hit to growth in economies outside China due to large, negative spillover effects. China is too big and too interconnected worldwide to ignore," the economists said.

Ole Hansen, head of commodity strategy at Saxo Bank, said that economic fears add to the growing general uncertainty in the marketplace, which will continue to support gold prices in the near-term.

However, Hansen said that gold's only issue is that it could be running out of buyers as prices remain confined in a relatively narrow range. He noted that even with the previous week's major liquidation, net length in the gold market has covered around 200,000 for the last six months.

"Investors who have been buying need an indication that prices are on the right track," he said. "Right now, there is no reason to sell your gold, but there are not a lot of new reasons to buy if we don't see any new price action."

Analysts at TD Securities acknowledged that gold's net length does provide a near-term risk to prices; however, they added that growing financial market uncertainty will continue to support prices.

"We believe any correction would be shallow in nature," the analysts said.

While the gold market is attracting some renewed interest, the silver market continues to struggle. Speculative interest, although near record highs, have been relatively flat since the start of the year.

The disaggregated report showed money-managed speculative gross long positions in Comex silver futures fell by 693 contracts to 77,942. At the same time, short positions also fell by 182 contracts to 23,235. Silver's net length currently stands at 54,707contracts, nearly unchanged from the previous week.

Price action during the survey period was relatively calm, with silver prices trading in a narrow range above critical initial support at $17.50 an ounce.

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