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Gold is stuck at $1,800 as hedge funds reduce their exposure to the precious metal

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(Kitco News) - Hedge funds covering some short positions in the gold market are helping the precious metal maintain its upward bias as prices hold around $1,800 an ounce, but analysts continue to see waning bullish momentum.

The CFTC disaggregated Commitments of Traders report for the week ending July 13 showed money managers decreased their speculative gross long positions in Comex gold futures by 775 contracts to 135,163. At the same time, short positions fell by 4,912 contracts to 44,735.

The gold market's net length now stands at 90,401 contracts, up 4.7% from the previous week. Although gold saw its net length increase for the third consecutive week, analysts have noted that it has not helped the precious metals price. During the survey period, gold price was not able to push significantly above $1,800 an ounce.

Many analysts have said that gold's lackluster price action as bond yields dropped to multi-month lows is an indication that prices could turn lower in the near term.

"The yellow metal found some life after Powell's testimony pushed back on recent hawkish pricing, while central banks and physical buyers also helped prop up markets. But, even as macro growth angst catalyzed a repricing in expectations for Fed hikes, gold still could not catch a bid," said commodity analysts at TD Securities. "While a slower global growth profile, matched with transitory inflation, should keep Fed tightening at bay and eventually provide a beneficial environment for gold, risks remain in the near term. Given that gold's recent underperformance against slumping real rates continues to suggest a lack of investor interest, and consolidation of current market pricing that may result in higher real and nominal rates could still send prices lower."

Last week TD Securities announced that it initiated a short-term tactical short gold position at $1,800 an ounce and targeted $1,730 an ounce.

Analysts at Commerzbank said some gold investors appear to be paring back their exposure to the precious metal ahead of this week's Federal Reserve monetary policy meeting. There are growing expectations that the U.S. will push forward with its plans to taper its monthly bond purchase program. 

Commerzbank also noted that weak speculative interest could also be seen in gold-backed exchange-traded products. Quoting data from Bloomberg, the bank said that the gold market saw outflows of just under three tonnes last week.

In a recent interview with Kitco News, Rob Haworth, senior investment strategist at U.S Bank Wealth Management, said that the U.S. recovery remains a compelling story for U.S. investors and that leaves gold on the defensive.

He added that the gold market lacks a catalyst in the current growth environment, keeping investors on the sidelines.

"The gold market is pausing to see what comes next, but we think the growth stories are too compelling right now to benefit gold," he said.

While hedge funds and investors still see some potential for gold, the market has sharply turned in the silver market, with money managers significantly dropping their bullish bets and increasing their short positions.

The disaggregated report showed money-managed speculative gross long positions in Comex silver futures fell by 6,233 contracts to 53,215. At the same time, short positions increased by 1,840 contracts to 27,133.

Silver's net length stands at 26,082, down more than 23% from the previous week. During the survey period, prices dropped below $25 an ounce. 

Some analysts have said that growing concerns regarding global economic activity are weighing on silver's industrial demand, which is dragging down prices.

The same sentiment can be seen in the copper market. The disaggregated report showed money-managed speculative gross long positions in Comex high-grade copper futures fell by 964 contracts to 56,075. At the same time, short positions rose by 344 contracts to 28,240.

Copper's net length dropped to 27,835 contracts, down 4% from the previous week. During the survey period, copper prices tested support around $4.20 per pound. Some analysts have said that they expect speculative interest to pick up as prices have recently pushed to a six-week high.

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