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Hawkish Fed spooks hedge funds to take some profits in gold, but sentiment remains solidly bullish

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(Kitco News) - Hedge funds continue to take profits in gold as the Federal Reserve ratches up its hawkish rhetoric and safe have demand continues to weaken, according to the latest data from the Commodity Futures Trading Commission.

Many analysts note that the latest trade data shows there is still a lot of bullish sentiment in the marketplace; some traders have said they see strategic opportunities to enter the gold market at lower price levels.

In a recent interview with Kitco News, David Madden, market analyst at Equiti Capital, said that although markets will remain volatile, gold has held up well even in the face of rising interest rates and bond yields.

"There is very little that could derail the rally to higher prices," he said.

The CFTC disaggregated Commitments of Traders report for the week ending March 22 showed money managers lowered their speculative gross long positions in Comex gold futures by 13,008 contracts to 152,589. At the same time, short positions fell by 1,603 contracts to 37,457.

Gold's net length now stands at 115,132 contracts, down 9% from the previous week. During the survey period, gold prices were capped just below $1,950 an ounce. Daniel Briesemann, precious metals analyst at Commerzbank, said bullish speculative positioning is at a six-week low.

However, while speculative positioning has dropped, Briesmann noted that demand for gold-backed exchange-traded products remains solid. He noted that global gold ETFs have seen ten weeks of consecutive inflows.

Ole Hansen, head of commodity strategy at Saxo Bank, also highlighted strong EFT demand as speculative interest dropped.

"On Friday, total holdings reached a 13-month high at 3289 tons, up 95 tons during the past month," he said.

A weaponized U.S. dollar could prompt central banks to diversify with more gold - MKS' Shiels

At the same time, not all analysts are bullish on gold in the near-term. Commodity analysts at TD Securities said that aggressive monetary policy action from the Fed could weigh on gold.

Last week, Federal Reserve Chair Jerome Powell suggested that the central bank could raise interest rates by 50 basis points in May because of rising inflation. Markets are now starting to price in the potential for two 50-basis point moves in the first half of the year.

" We see rising risks that the Fed will deliver a hawkish surprise to markets, which could further sap interest from a cohort of participants who view the Fed's hiking path as being behind the curve on inflation," analysts at TD said.

Along with gold, hedge funds also reduced their overall exposure to silver.

The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures fell by 4,645 contracts to 57,604. At the same time, short positions fell by 430 contracts to 13,776.

Silver's net length stands at 43,828 contracts, relatively unchanged from the previous week. Silver prices managed to push hold support around $25.50 ounce during the survey period.

While silver struggles to find momentum in gold's shadow, analysts remain optimistic that prices will stay in their long-term uptrend.

"Inflation will remain high in the near future, which is good for silver as an alternative safe-haven option for investors. If gold pushes to new highs, silver will follow and may outperform gold," said analysts at European precious metals firm Heraeus.

Unlike precious metals, investors are increasing their exposure to base metals with new momentum in copper.

Copper's disaggregated report showed money-managed speculative gross long positions in Comex high-grade copper futures rose by 5,564 contracts to 66,249. At the same time, short positions fell by 1,561 contracts to 30,369.

Copper's net length is currently at 35,880 contracts, up nearly 25% from the previous week. During the survey period, copper prices managed to push above $4.70 an ounce.

"Fears of supply disruptions due to Chinese covid lockdowns and elevated energy prices likely drove investors to add back length, but our return decomposition framework highlights that no supply risk premium is being broadly embedded into prices this time around. Nonetheless, with supply risks still ever present, particularly on the energy side, the red metal could still find support against an increasingly hawkish macro backdrop," commodity analysts at TD Securities said.

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