Hedge funds testing the gold investment waters but not enough interest to push prices to $1,800
(Kitco News) - The latest data from the Commodity Futures Trading Commission showed that a sharp decline in U.S. 10-year bond yields enticed some hedge funds and money managers back into the gold market.
However, the renewed speculative bullish interest wasn't enough to drive prices back above $1,800 an ounce.
Although most market analysts remain bullish on gold in the long term, some have noted that the precious metal could struggle to find upward traction as growth expectations outweigh the rising inflation threat.
CFTC disaggregated Commitments of Traders report for the week ending April 20 showed money managers increased their speculative gross long positions in Comex gold futures by 4,773 contracts to 116,843. At the same time, short positions also rose by 2,156 contracts to 60,419.
Gold's net length currently stands at 56,424, relatively unchanged from the previous week. During the survey period, gold prices rose to a two-month high as it pushed closer to $1,800 an ounce.
Although gold prices pushed to within striking distance of a critical resistance point, some analysts note that there is still a general lack of interest plaguing the precious metal market.
"In gold, lack of enthusiasm in ETFs and speculators in COMEX futures an indication that large scale short covering from longer-term trend funds and renewed momentum buying has not yet emerged. For that to happen, gold as a minimum need to break above $1815," said Ole Hansen, head of commodity strategy at Saxo Bank, in a note to clients Monday.
Analysts at TD Securities said that they are also watching the $1,800 an ounce level. They added that they think it's only a matter of time before this level is breached, but it won't come without volatility.
"Following aggressive long exposure reductions, a downward trending USD along with declining real yields across the curve prompted money managers to finally start to increase their net long gold positions during the reporting period. The recent yield curve flattening also helped convince specs that they would be better off holding more gold," the analysts said in a report Friday. "However, with the curve still subject to moving higher, as risk appetite continues to be strong and U.S. data kept printing at above expectations, specs also took out a significant amount of new short positions amid concerns the gold rally may unwind."
In a recent interview with Kitco News, Eugen Weinberg, head of commodity research at Commerzbank, said that while gold has room to push above $1,800 an ounce in the near term, he is relatively neutral on the price until at least the fourth quarter of 2021.
He added that while investors will continue to see gold as an essential long-term inflation hedge, the improving economic data will continue to support the current economic recovery and could add further momentum to U.S. bond yields and the U.S. dollar.
Weinberg added that he is also watching equity markets to determine gold's next move. He explained that if equity markets continue to sell off, then investors might turn to the precious metal as a safe-haven asset.
"In the short term, I would not be in a hurry to jump into this market," he said. "Right now, gold doesn't have a lot of potential as the economic recovery seems to be quite good. But in the medium to long-term, I expect gold prices to be much higher, buoyed by rising inflation and continued stimulus from central banks."
Although the gold market has seen a significant reduction in bullish speculative interest since the start of the year Georgette Boele, senior precious metals strategist at ABN AMRO, said that positioning is still elevated by historical standards and will remain a risk to the market.
"Long gold is still a crowded trade," she said.
While hedge funds remain cautious on the gold market, they continue to remain bullish on silver. The silver market has seen its net length expand for three consecutive weeks.
The disaggregated report showed money-managed speculative gross long positions in Comex silver futures rose by 6,069 contracts to 61,979. At the same time, short positions increased by only 649 contracts to 27,992.
Silver's net length currently stands at 33,987 contracts, up nearly 19% from the previous week.
During the survey period, silver prices managed to break above $26 an ounce; the market currently holds support above that level. Silver continues to outperform gold as the gold-silver ratio hold near a one-month low, last trading at 68.06 points.
Many analysts are more bullish on silver than gold. Some analysts expect that an improving economy and the growing green energy transformation will provide important support for silver's industrial demand.