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Gold is running out of gas, but analysts see correction as buying opportunity

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(Kitco News) - Hedge funds are starting to take some profits in their bullish gold bets as the price struggles around $1,900 an ounce, according to the latest data from the Commodity Futures Trading Commission (CFTC).

While many analysts remain bullish on gold through at least the end of the year, many have said that consolidation below $1,900 would be healthy after two solid months of gains. In a recent interview with Kitco News, Ole Hansen, head of commodity strategy at Saxo Bank, said that the technical outlook is bearish; however, he would not be playing the short side. He added that it is difficult to be bearish on gold when inflation pressures continue to rise.

The CFTC disaggregated Commitments of Traders report, for the week ending June 8, showed money managers decreased their speculative gross long positions in Comex gold futures by 2,233 contracts to 145,037. At the same time, short positions rose by only 76 contracts to 37,373.

This is the first time in six weeks that gold saw its net length drop. Gold's net length currently stands at 107,664 contracts, down 2% from the previous week.

During the survey period, gold prices managed to test resistance at $1,900 but were unable to hold any gains.

"We see evidence that money manager positioning was overwhelmingly driven by algorithmic trend followers over the last month. However, with algorithmic short-covering now running out of steam, we see evidence that prices are increasingly vulnerable to a near-term pullback, like a speed bump on the racetrack, as inflation-hedging demand wanes alongside physical flows," said analysts at TD Securities.

Many analysts have said that they see a correction in gold as a buying opportunity as the Federal Reserve is not in any hurry to tighten its monetary policy, even as inflation pressures rise.

While gold is losing some momentum, interest in silver is picking up as hedge funds reduced their bearish bets last week.

The disaggregated report showed money-managed speculative gross long positions in Comex silver futures fell by 1,970 contracts to 68,150. At the same time, short positions dropped by 3,675 contracts to 25,766.

Silver's net length now stands at 42,384 contracts, up 4% from the previous week. This was the first increase in silver's net length in four weeks.

During the survey period, prices managed to hold critical support around $28 an ounce.

Looking at copper, the price manages to hold critical support above $4.50 a pound even as hedge funds continue to reduce their long positions and increase their bearish bets.

The disaggregated report showed money-managed speculative gross long positions in Comex high-grade copper futures fell by 1,447 contracts to 66,095. At the same time, short positions rose by 1,643 contracts to 42,417.

Copper's net length currently stands at 23,678 contracts, down 11.5% from the previous week.

"While the bearish factors continue to weigh on price action, supply concerns surrounding the Peruvian election have seen our readings of supply-risk premium offer support to the market to end the week," said commodity analysts at TD Securities.

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.