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Gold’s luster continues to fade as hedge funds liquidate bullish bets for fourth straight week

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(Kitco News) - Hedge Funds continue to liquidate their bullish gold bets; however, the latest trade data from the Commodity Futures Trading Commission shows they are also hesitant to make any significant bearish bets.

"Sentiment is poor in precious metals, and elevated positioning analytics still argue for potential additional pain for gold bugs," said analysts at TD Securities.

According to some analysts, the data shows that bullish momentum in the U.S. dollar, coupled with the bond market selloff, is creating a challenging environment for the precious metal. At the same time, growing volatility in equity markets supports gold as a safe-haven asset.

For many analysts, the critical unknown factor for gold remains inflation. Market analysts have said that if inflation pressures have peaked, real yields, which just recently turned positive, could push higher, which will create some competition for gold.

"Ultimately, real interest rates will go higher, which is bad news for gold," he said. "I think it's only a matter of time before gold is trading comfortably below $1,800 an ounce. I expect that by year-end, gold prices could be below $1,700," said Chris Vecchio, senior market strategist at DailyFX.com, in a recent interview with Kitco News.

The CFTC disaggregated Commitments of Traders report for the week ending May 10 showed money managers lowered their speculative gross long positions in Comex gold futures by 4,897 contracts to 123,931. At the same time, short positions rose by 958 contracts to 61,939.

Gold's net length now stands at 67,847 contracts, down 8.6% from the previous week. Gold's net length fell to a fresh three-month low as it has seen four straight weeks of declines. During the survey period, gold prices dropped below $1,850 an ounce.

Ole Hansen, head of commodity strategy at Saxo Bank, noted that bullish positioning has dropped more than 58% from its March peak.

"Gold remains technically challenged with a break above its 200-day moving average at $1838 needed for that to change," he said in a note.


Gold faces new competition as real yields turn positive - USBWM

The silver market continues to suffer from significantly bearish positioning.

The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures fell by 830 contracts to 39,862. At the same time, short positions rose by 12,514 contracts to 38,016.

Silver's net length stands at 1,846 contracts, nearly 88% compared to the previous week. Silver has seen its bullish positioning drop 95% in the last month.

Silver prices saw continuous selling pressure through the survey period as prices dropped below $21.50 an ounce.

Analysts have said that silver continues to underperform gold as it gets hit as a monetary metal and an industrial metal.

Copper has seen a significant rise in bearish positioning due to concerns about a slowing global economy.

"While talk of Chinese stimulus kept the market somewhat supported, it was ultimately not enough to offset the growing demand woes in the Middle Kingdom. Indeed, lockdowns act as a major constraint on potential stimulus," 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 8,439 contracts to 45,247. At the same time, short positions rose by 434 contracts to 64,194.

The copper market turned net negative for the first time in two years the previous week and its net short positioning has nearly doubled since then. During the survey period, the copper price dropped below $4.20 a pound.

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.