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Hedge funds increase bullish bets in gold as they see Fed delaying tapering plans

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(Kitco News) - Growing uncertainty surrounding U.S. central bank monetary policy prompted some hedge funds to jump back into the gold market, according to analysts looking at the latest trade data from the Commodity Futures Trading Commission (CFTC).

Although Federal Reserve Chair Jerome Powell said recently that he expects the central bank to release its plans regarding reducing its monthly bond purchases by the end of the year. Some analysts have said that it is improbable any road map will be released later this month, and this delay has provided some initial support for gold.

"Our economists believe that [Friday's] labor market report will influence the U.S. Fed and consider it unlikely that so-called tapering will be announced either at the upcoming meeting on 21/22 September or at the following meeting in early November," said Daniel Briesemann, precious metals analyst at Commerzbank.

The CFTC disaggregated Commitments of Traders report for the week ending Aug. 24 showed money managers increased their speculative gross long positions in Comex gold futures by 9,919 contracts to 136,555. At the same time, short positions rose by 3,686 contracts to 54,878.

Gold's net length now stands at 81,677 contracts, up 8% from the previous week. Renewed interest in gold helped push prices to $1,820 an ounce, nearly a one-month high.

"After aggressively increasing long gold exposure last week, money managers again hiked their net long holdings as prices continued to migrated into $1,800/oz territory. Investors also grew their long positions in response to signals coming from Fed Chair Powell, which suggested that the US central bank is tilting policy emphasis toward full employment and that it has no major inflation concerns, suggesting no material removal of stimulus," said commodity analysts at TD Securities. "However, while the market believed that the Fed may tolerate temporary inflation spikes and rates slid lower, some money managers added short exposure nonetheless."

While hedge funds continue to see value in gold, the silver market remains relatively lackluster. However, some analysts note that silver has more bullish potential.

The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures increased by 914 contracts to 49,008. At the same time, short positions dropped by 735 contracts to 36,735.

Silver's net length stands at 12,273 contracts, up 15% from the previous week. During the survey period, silver prices push above resistance at $24 an ounce.

Along with the precious metals market, base metals appear to be building a solid footing as hedge funds drop their bearish bets.

Copper's disaggregated report showed money-managed speculative gross long positions in Comex high-grade copper futures rose by 7,396 contracts to 58,189. At the same time, short positions fell by 11,305 contracts to 27,221.

Copper's net length is currently at 30,968 contracts, jumping 152% from the previous week. Despite the drop in bullish sentiment, copper prices managed to test resistance at $4.40 per pound.

"Speculators continued to cover shorts and added new length in copper as prices regained momentum off the mid-August lows. Indeed, China's zero-tolerance approach to Covid-19 cases proved successful against the Delta-variant, which helped demand expectations firm and eased fears of a more significant shuttering in manufacturing activity. At the same time, broad supply-side risks remained elevated, which combined to see CTA funds re-accumulate length," said TD Securities.

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