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Hedge funds continue to sell gold but sentiment is shifting

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(Kitco News) - The latest data from the Commodity Future Trading Commission (CFTC) shows that hedge funds continue to reduce their bullish exposure to gold; however, analysts have noted a shift in sentiment as prices have bounced off support below $1,800 an ounce.

In an interview with Kitco News, Peter Grosskopf, CEO of Sprott Inc, said that gold is due for a bounce higher in the near-term as bearish sentiment move close to extreme levels.

"Gold was getting pretty washed out, so I am comfortable saying that price should go higher as sentiment turns bullish," he said. "Gold continues to do its job and is once again an important risk-off asset."

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 8,359 contracts to 123,931. At the same time, short positions rose by 10,273 contracts to 72,212.

Gold's net length now stands at 43,360 contracts, down 30% from the previous week. Gold's net length fell to an eight-month low. During the survey period, gold prices dropped to a four-month low of $1,785 before rebounding higher.

"According to the CFTC's statistics, speculative financial investors had withdrawn further…, reducing their net long positions to their lowest level since last September," said Daniel Briesemann, precious metals analyst at Commerzbank. "In our view, however, this should now have adjusted the market, meaning that the selling pressure generated by this group of investors should have abated significantly."

However, some analysts are not convinced that the gold market has bottomed.

"Moving forward, however, given the Fed appears willing to sacrifice some economic growth in an effort to tame inflation, the path of least resistance for gold remains lower," said analysts at TD Securities.

Ole Hansen, head of commodity strategy at Saxo Bank, said that while sentiment is shifting, the gold market still has some technical hurdles to get over.

"For gold, in order to turn more investor-friendly, will need to break the next significant hurdle at $1868, the 38.2% retracement of the recent 210-dollar correction," he said.

Strong selling pressure in the silver market also appears to be easing.

The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures fell by 947 contracts to 40,809. At the same time, short positions rose by 2,466 contracts to 40,482.

Silver's net length stands at 327 contracts, down 82% compared to the previous week. During the survey period, silver prices dropped below $21 an ounce before bouncing higher.

There is less conviction that silver, as bottomed as uncertainty, continues to dominate base metals, weighing on silver's industrial demand. Copper's net positioning remains bearish.

Gold price pushes to $1,850 as U.S. dollar drops 2% from 20-year peak

Copper's disaggregated report showed money-managed speculative gross long positions in Comex high-grade copper futures fell by 4,553 contracts to 40,694. At the same time, short positions rose by 4,081 contracts to 60,113.

The copper market is net short 19,419 contracts, relatively unchanged from last week. During the survey period, copper prices dropped below $4.20 a pound but have bounced off their lows.

However, growing uncertainty surrounding the global economy is weighing on the base metal, according to some analysts.

"While improved risk appetite has helped lift markets, copper remains in a precarious position as global macro angst grows, while Chinese lockdowns continue to hamper growth and the effectiveness of stimulus proposals," said analysts at TD Securities. "In this context, the trading regime in base metals has morphed into a sell-rallies regime."

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.