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Hedge funds drop their bullish gold and silver bets ahead of Fed meeting - CFTC

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(Kitco News) - The Federal Reserve's impending interest rate hike, which has driven the U.S. dollar to a nearly 20-year high is prompting gold investors to reduce their bullish positioning, according to the latest trade data from the Commodity Futures Trading Commission.

Analysts have noted that the Federal Reserve's plan to aggressively tight its monetary policy to address the growing inflation threat is a significant headwind for gold. Not only is the U.S. dollar hitting long-term resistance levels, but bond yields have pushed to within striking distance of 3%, the highest level since 2018.

However, many analysts have also noted that gold has historically hit a long-term low ahead of a new hiking cycle.

Ole Hansen, head of commodity strategy at Saxo Bank, described gold's current price action as a "dangerous market."

"Gold investors just need to get past Wednesday's FOMC meeting to find some new momentum," he said.

The CFTC disaggregated Commitments of Traders report for the week ending April 26 showed money managers lowered their speculative gross long positions in Comex gold futures by 19,345 contracts to 138,215. At the same time, short positions rose by only 804 contracts to 57,098.

Gold's net length now stands at 81,117 contracts, down nearly 20% from the previous week. Gold's net length is currently at a three-month low. During the survey period gold prices tested support at $1,900 an ounce.

Gold silver prices down more than 2% as perfect storm hits commodity markets

Since then, gold has continued to struggle as the market was down nearly 3% Monday. Although gold is struggling to attract bullish momentum, some analysts note that the market is still relatively healthy as money managers are reluctant to make any significant bearish bets.

Phillip Streible, chief market strategist at Blue Line futures said that he sees gold's selloff as the last capitulation move ahead of the Federal Reserve's monetary policy meeting.

However, other analysts see further weakness instore for gold.

"Given that high food and energy prices are here for a significant period of time and considering that inflation is well rooted in the economy, it is very likely that the US central bank will continue to emit very hawkish policy signals for a while yet. This implies that any rallies, like the one over the last few days, may have a limited life span and long liquidations may be a fact of life well into the second half of the year," said analysts at TD Securities.

Investors aren't just stepping away from the futures market. Daniel Briesemann, precious metals analyst at Commerzbank, noted that last week global gold-backed exchange-traded funds saw outflows, ending a 14-week wining streak.

"The withdrawal of both groups of investors has probably been weighing on the gold price, contributing to lower prices accordingly," he said in a note Monday.

Along with gold, silver is also struggling as hedge funds react to the Federal Reserve's impending rate hike.

The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures fell by 12,614 contracts to 44,689. At the same time, short positions fell by 1,706 contracts to 18,291.

Silver's net length stands at 26,398 contracts, down 34% compared to the previous week. Silver prices saw continuous selling pressure through the survey period as prices dropped below $24 an ounce. The market has lost further ground as prices have dropped below $23 an ounce.

Not only is silver struggling as a monetary metal, but its industrial demand is also struggling. A growing threat of a global economic slowdown is weighing on base metals. Hedge funds significantly reduced their exposure to copper according to last week's report. Analysts have said that China's slowing economy due to its COVID-19 lockdowns.

"While infrastructure-focused stimulus implies strong tailwinds for commodity demand down the road, traders' attention remains on the interim flood of metal deliveries into LME warehouses which continues to weigh on prices," said commodity analysts at TD Securities.

Copper's disaggregated report showed money-managed speculative gross long positions in Comex high-grade copper futures fell by 11,101 contracts to 58,010. At the same time, short positions rose by 11,411 contracts to 56,433.

Copper's net length fell to 1,577 contracts, falling 93% from the previous week. During the survey period, the copper price tested new support at $4.40 a pound.

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