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Hedge funds still bullish on gold and silver but bearish cracks appearing

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(Kitco News) - Hedge funds are still optimistic that gold prices can move higher, but some bearish bets are growing as the market is looking a little crowded, according to the latest trade data from the Commodity Futures Trading Commission (CFTC).

The gold market has seen bullish sentiment pick up as prices have managed to hold initial support above $1,800 an ounce; however some analysts have said that now is not the time for investors to chase the market higher.

In a recent interview with Phillip Streible, chief market strategist at Blue Line Futures, said that although he is bullish on gold, he would recommend investors wait for a pullback before jumping into the market. He noted that gold is currently the fourth most-crowded trade among safe-haven assets.

The bullish sentiment can be in speculative interest. The CFTC's disaggregated Commitments of Traders report for the week ending July 7 showed money managers increasing their speculative gross long positions in Comex gold futures by 6,284 contracts to 179,810. At the same time, short bets rose by 5,496 contracts to 40,467. 

Because of the increase in short-bets last week, gold's net-long positioning is relatively unchanged at 139,434 contracts.

“Gold remains torn between its safe-haven bona fides, which are prompting money managers to sell on risk-on behavior in markets, and its inflation-hedge characteristics, which are driving a swarm of capital to seek refuge in the yellow metal,” said analysts at TD Securities.

Although bearish sentiment is creeping into the market, the TDS analysts said that they still see room for gold to go higher.

Moving forward, given positioning is still not extremely stretched, we anticipate that real rates will continue to drive gold prices higher as normalizing inflation expectations and suppressed rates vol provide fuel for the trade,” they said.

Analysts at Commerzbank also expect to see higher gold prices.

While gold has already achieved all-time highs in virtually all major currencies this year, it is still a good $100 from doing so in US dollar terms. There are plenty of arguments in favour of further price rises: the number of new corona cases is still soaring at a record rate, both worldwide and in the US. This increases the potential for stock market corrections,” they said.

Hedge funds are also becoming more bullish on silver, even as they add new short-bets, the CFTC data showed.

The disaggregated report showed money-managed speculative gross long positions in Comex silver futures rose by 2,280 contracts to 62,211. At the same time, short positions increased by 1,414 contracts to 26,195.

Silver net length rose to 36,016 contracts, up 2% from the previous week. During the survey period silver priced manage to test critical resistance below $19 an ounce.

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.