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ETF gold investors bargain hunt while speculators panic sell

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(Kitco News) -A new schism is growing in the gold market. Speculators in the futures markets appear to be at odds with investors in gold-backed exchange-traded products (ETF).

Interest in gold among hedge funds and money managers has been waning in recent weeks as the price has been unable to hold gains above $1,900 an ounce. The dam holding back the selling pressure finally burst last week as gold saw its worst weekly drop since March 2020 when the COVID-19 Pandemic roiled financial markets.

"Gold's steep decline following so-called 'hawkish' Fed comments (reality is opposite) was entirely driven by levered futures selling & shorting by hedge funds & headline-reading computers," said Fred Hickey, creator of the High Tech Strategist newsletter, in a comment on Twitter.

Because of the new Juneteenth holiday, the Commodity Futures Trading Commission won't be releasing its Commitment of Traders data until Monday afternoon. Analysts expect that the latest data will show renewed selling pressure among speculative investors.

The selling pressure in the gold market picked up momentum mid-week after projections from the Federal Reserve highlighted the prospect of two rate hikes in 2023. The gold price dropped $100 in two days. It ended the week down more than 5% following the Federal Reserve's monetary policy meeting.

However, as speculators were liquidating in the futures market, investors were bargain hunting in the ETF market. The latest data from SPDR Gold Shares (NYSE: GLD), the world's largest gold ETF, shows gold holdings increased by 11 tonnes on Friday as prices dropped to a seven-week low.

Analysts noted that GLD saw its biggest one-day increase since the start of the year and could bode well for the long-term uptrend.

"If this were to be confirmed in the coming days, it would be a positive sign that in our opinion would point to a price recovery in the near future," said Carsten Fritsch, precious metals analyst at Commerzbank.

This is not the first time there has been a discrepancy between speculators in the futures market and ETF investors. However, analysts have noted that it is usually the ETF market that dominates the trend when this divide has happened.

Hickey noted that if gold prices have bottomed, it won't take much to shift speculative interest back to the bullish side.

Ole Hansen, head of commodity strategy at Saxo Bank, said that he expects the gold market to stabilize around $1,755 an ounce. A pushback above $1,800 will bring investors back to the marketplace.

However, commodity analysts at TD Securities warned that gold prices could see lower prices as they don't expect the selling pressure has ended just yet.

"Considering that gold was set-up for a pullback like a speed bump on the racetrack, with speculative and physical flows slowing, the ongoing pullback likely has more room to run. However, the gold bug isn't dead just yet — if inflation turns out to be truly transitory, as TD Securities expects, then pricing for Fed hikes will prove too hawkish. Unfortunately for gold bulls, underlying inflation trends will remain distorted for months, which also inhibits the immediate impetus for buying the yellow metal," the analysts said in a report Monday.

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.