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Hedge funds still bullish on gold price; waiting for a breakout

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(Kitco News) - The gold market continues to consolidate in a narrowing range. While the price action balances on a knife's edge, analysts note that the Commodity Futures Trading Commission's latest trading data remains bullish.

The Commodity Future Trading Commission (CFTC) disaggregated Commitments of Traders report for the week ending Sept. 8 showed money managers increased their speculative gross long positions in Comex gold futures by 8,353 contracts to 155,528. At the same time, short positions rose by 1,803 contracts to 51,236.

Gold's net length now stands at 104,292 contracts. During the survey period, the gold market managed to hold critical support above $1,900 an ounce as the price continued to consolidate.

Analysts have said that not only are hedge funds still buying gold, but the market has seen only a shallow correction from August's all-time highs above $2,000 an ounce.

Analysts at TD Securities noted that there is a lot of pent up demand in the marketplace as investors continue to buy gold on dips.

"As expected, we did not witness a deeper shakeout in positioning, with recent price action signaling there were not many weak longs remaining in the market," the analysts said. "Furthermore, the ECB's decision to brush off the exchange rate appreciation has crossed off an important hurdle for gold bugs as investors can refocus on the weak USD narrative. In addition, a dovish FOMC meeting could clear the second hurdle for yellow metal bulls, opening the path for a renewed run toward $2000/oz."

In a report, Monday, Mike McGlone, senior commodity strategist at Bloomberg Intelligence, said that the latest trade data shows the gold market is attracting healthy long-term interest.

He added that the data shows more organic interest in the precious metal than speculative hot money driving prices to unstainable levels.

"Gold's futures positioning indicates divergent strength to us. Steadily increasing prices coinciding with declining managed-money net longs imply a healthy bull market that's driven more by demand in excess of supply than speculation," he said. "Fewer speculative net longs diminish risks of overbought and overexuberant liquidation price declines."

In a recent interview with Kitco News, Charlie Nedoss, senior market strategist with LaSalle Futures Group, said that although gold has struggled to make new highs, the most crucial factor for him is that the price has managed to hold critical support during the consolidation phase.

He noted that gold has bounced off its 50-day moving average and is now pushing above the 20-day moving average. He noted that this is an indication of underlying strength in the marketplace.

"I look at the chart and the past of least resistance for me is higher," he said.
While investors are once again paying attention to gold, their interest in silver appears to have plateaued, according to the latest trade data.

"The disaggregated report showed money-managed speculative gross long positions in Comex silver futures fell by 1,902 contracts to 59,951. At the same time, short positions fell by 139 contracts to 24,127.

Silver's net length currently stands at 35,824, down nearly 5% from the previous week.

Similar to gold, silver prices have been consolidating in a narrow range with support above $26 an ounce and resistance at $28 an ounce.

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