Make Kitco Your Homepage

Hedge funds sell gold for the third straight week

Kitco News

Editor's Note: With so much market volatility, stay on top of daily news! Get caught up in minutes with our speedy summary of today's must-read news and expert opinions. Sign up here!

(Kitco News) - For the third consecutive week, hedge funds reduced their bullish bets on gold and increased their short exposure as investors prepared for the Federal Reserve to raise interest rates by 50-basis points for the first time in more than two decades.

The latest trade data from the Commodity Futures Trading Commission  (CFTC) shows growing bearish sentiment in the precious metals market; however, some analysts have noted that the gold market remains healthy despite rising interest rates.

Some analysts have said that the gold market has seen some expected consolidation following a strong first-quarter performance, which saw prices push to $2,000 an ounce.

However, some analysts see room for lower prices in the near term. In a report Friday, commodity analysts noted that there are a lot of complacent bullish investors still in the gold market.

"Net non-commercial futures length plummeted -3.5% on the week, with participants shedding some complacent length associated with the war in Ukraine ahead of the Fed's highly-anticipated hike and announcement on quantitative tightening. With the Fed telegraphing its every move, positioning analytics will be key for price action. We still see a significant amount of complacent length remaining in gold, while the breadth of traders short has just started to rise from near-record lows," the analysts said.

The CFTC disaggregated Commitments of Traders report for the week ending May 3 showed money managers lowered their speculative gross long positions in Comex gold futures by 9,387 contracts to 128,828. At the same time, short positions rose by 3,883 contracts to 60,981.

Gold's net length now stands at 67,847 contracts, down 16% from the previous week. Gold's net length fell to a fresh three-month low. During the survey period, gold prices dropped below $1,900 but found support at around $1,850 an ounce.

"153 tons of gold have thus been sold via the futures markets in the past three weeks. This is presumably one reason why the gold price has shed $100 or 5% during this time," said Daniel Briesemann, precious metals analyst at Commerzbank.

Ole Hansen, head of commodity strategy at Saxo Bank, noted that short bets in the gold market are currently seven months high. However, he also noted that despite the headwinds, gold continues to show relative strength compared to other assets.

$USD-based investors are +16% ahead vs $SPX and +26% vs $TLT. In Europe, a euro-based investor is looking at +25% vs. Stoxx50 and +20% vs. EU Govt bonds. Gold investors focus on the timing of the inevitable FOMC policy mistake," he said in a Twitter post.

Gold isn't the only precious metal suffering. Hedge funds also continue to liquidate their bullish silver bets and increase their short positioning.

The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures fell by 3,997 contracts to 40,692. At the same time, short positions fell by 7,211 contracts to 25,502.

Silver's net length stands at 15,190 contracts, down more than 42% compared to the previous week. Silver prices saw continuous selling pressure through the survey period as prices dropped to support at $22.50 an ounce.

Phillip Streible, chief market strategist at Blue Line Futures, said growing fears of an economic slowdown weigh on silver's industrial demand, which is why it is underperforming gold.

Gold ETF holdings are just 1% off of 2020 highs, but market is slowing - WGC

Sentiment in copper has turned sharply bearish, according to the latest trade data.

Copper's disaggregated report showed money-managed speculative gross long positions in Comex high-grade copper futures fell by 4,324 contracts to 53,686. At the same time, short positions rose by 7,327 contracts to 63,760.

The copper market turned net negative for the first time in two years, dropping to -10,074 contracts. During the survey period, the copper price dropped through initial support at $4.20 a pound.

"This wave of liquidations comes as metal floods into the LME warehouses, easing supply risk premia, as metal that would have otherwise been consumed in China was redirected to the LME exchange amid demand woes and a concurrent CNY depreciation," said analysts at TD Securities said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.