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Gold still shines as a safe haven even as hedge funds reduce bullish bets

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(Kitco News) - Analysts aren't giving up on gold, saying that the precious metal's safe-haven allure hasn't completely diminished; however, some hedge funds have reduced their bullish exposure to gold as investors prepared for the Federal Reserve's new tightening cycle, according to the latest data from the Commodity Futures Trading Commission.

The CFTC disaggregated Commitments of Traders report for the week ending March 15 showed money managers lower their speculative gross long positions in Comex gold futures by 15,913 contracts to 165,597. At the same time, short positions rose by only 523 contracts to 39,060.

Gold's net length now stands at 126,537 contracts, down roughly 11.5% from the previous week. However, bullish positioning is up more than 150% after hitting a nearly one-year low in early February.

During the survey period, gold prices saw a sharp decline but held critical support around $1,900 an ounce.

Daniel Briesemann said that bullish speculative interest in gold is also reflected in gold-backed exchange-traded products. He noted that the market has seen nine consecutive weeks of inflows.

"ETF holdings have been topped up by over 120 tons since the start of the month, and by somewhat more than 200 tons since the beginning of the year," he said in a research note published Monday.

"[CFTC speculative positioning] remains at an above-average level as compared with the past 1.5 years, however. In other words, it is not only ETF investors but also speculative financial investors who appear to be still counting heavily on gold as a safe haven and store of value," he added.

Ole Hansen, head of commodity strategy at Saxo Bank, said that he also doesn't expect safe-haven demand for the precious metal to dry up completely.

Gold price off its highs as Powell says inflation is too high

"Long liquidation from leveraged funds who had loaded up on gold futures in recent weeks may have run its course, while longer-term focused investors have been continued buyers of gold ETFs since the war began," he said in a note Monday. "We maintain our bullish outlook in the belief inflation will remain elevated while central banks may struggle to slam the brakes on hard enough amid the risk of an economic slowdown. We believe the Russia-Ukraine crisis will continue to support the prospect for higher precious metal prices, not only due to a potential short-term safe-haven bid which will ebb and flow, but more importantly due to what this tension will mean for inflation…"

Some analysts have noted that it is not surprising that some investors reduced their exposure to gold ahead of the Federal Reserve's monetary policy announcement. However, many analysts have said that gold now has a clear path higher after the central bank released its plan for interest rates.

Last week, after raising interest rates by 25 basis points, the Federal Reserve lowered its growth forecast and raised its inflation expectations for 2022. At the same time, the central bank sees the potential for seven rate hikes this year.

The latest trade data shows that investors reduced their overall exposure to silver.

The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures fell by 2,118 contracts to 62,249. At the same time, short positions fell by 1,481 contracts to 14,206.

Silver's net length stands at 48,043 contracts, relatively unchanged from the previous week. During the survey period, silver prices managed to hold support above $25 an ounce.

Some analysts have noted that along with the selling pressure in gold, silver prices were under pressure as global economic expectations were downgraded as economists try to determine the impact Russia's war with Ukraine will have on activity.

Weaker economic growth expectations are also weighing on sentiment in the copper market.

Copper's disaggregated report showed money-managed speculative gross long positions in Comex high-grade copper futures fell by 10,851 contracts to 60,685. At the same time, short positions rose by 1,872 contracts to 31,930.

Copper's net length is currently at 28,755 contracts, down more than 30% from the previous week. During the survey period, copper prices fell sharply to retest support at $4.50 per pound.

Commodity analysts at TD Securities said that the copper market was also impacted by the massive disruption seen in nickel as significant volatility shut trading down worldwide.

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