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Hedge funds aggressively exit their bullish gold bets as U.S. dollar, bond yields rise

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(Kitco News) - Hedge funds and gold investors have significantly cut back on their bullish gold exposure as the precious metal continues to be weighed down by a stronger U.S. dollar and rising bond yields, according to the latest data from the Commodity Futures Trading Commission (CFTC).

CFTC disaggregated Commitments of Traders report for the week ending Jan. 12 showed money managers decreased their speculative gross long positions in Comex gold futures by 36,039 contracts to 131,057. At the same time, short positions increased by 2,296 contracts to 52,823.

"Gold saw a dramatic reduction in net longs after speculators were spooked by the surge in ten-year bond yields above 1% and a stronger dollar," said Ole Hansen, head of commodity strategy at Saxo Bank.

Gold's net length now stands at 78,234 contracts, a drop of more than 36% from the previous week. Bullish best in gold have dropped to their lowest level since May 2019, according to the report.

The significant drop in speculative interest dragged gold prices sharply lower below $1,850 an ounce during the survey period.

According to some analysts, the aggressive selling in the gold market could continue. Although long-term conditions remain bullish for gold, analysts at TD Securities said Friday that falling speculative interest could weigh on the precious metal.

"Looking forward, gold will likely remain under pressure until the weakness in the real economy prompts the market to pull back on their optimism— which in our view may soon be happening," the analysts said.

However, some analysts also see a silver lining in the marketplace as investment demand for gold-backed exchange-traded products has picked up as speculators liquidate their long positions.

"ETF investors appear to be viewing the lower price as a good buying opportunity," said Carston Fritsch, precious metals analysts at Commerzbank. "According to Bloomberg, ETF holdings increased by nearly 17 tons on Friday. Almost the entire inflow was attributable to the SPDR Gold Trust, which is used chiefly by institutional investors."

Although investors have been aggressively fleeing the gold market, the silver market appears to be holding its own.

The disaggregated report showed money-managed speculative gross long positions in Comex silver futures fell by 3,485 contracts to 69,805. At the same time, short positions rose by 461 contracts to 27,861.

Silver's net length currently stands at 41,944 contracts, down 8.5% from the previous week. Silver's net length is at its lowest level since late-November.

During the survey period, silver prices were able to hold support above $25 an ounce.

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