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Hedge funds aren't bearish on gold, but are they bullish?

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(Kitco News) - The gold market continues to struggle to attract solid bullish sentiment as hedge funds liquidated their bullish bets just ahead of its breakout move last week, according to the latest data from the Commodity Futures Trading Commission (CFTC).

According to some analysts, the latest data remains in line with sentiment in the gold market. Although the Federal Reserve has signaled that it is preparing to slow the pace of its interest rate hikes, the terminal rate is expected to remain elevated above 5% for the foreseeable future.

Many analysts have noted that gold is benefiting from hedge funds covering their short positions, but there is still a lack of bullish interest in the precious metal.

"People are not saying let's get long gold; they are saying let's not be short," said Kevin Grady, president of Phoenix Futures and Options,

Grady said that although gold has seen a decent pop as prices pushed above $1,800, there is a lack of follow-through buying for a sustainable rally.

Ole Hansen, head of commodity strategy at Saxo Bank, said sentiment is slowly starting to shift, but there is still more work that needs to be done.

"Conviction is starting to grow in the marketplace. At least investors don't want to be short anymore," he said.

The CFTC's disaggregated Commitments of Traders report for the week ending Nov. 29 showed money managers dropped their speculative gross long positions in Comex gold futures by 4,129 contracts to 88,032. At the same time, short positions increased by 582 contracts to 73,312.

The gold market is now net long by 14,720 contracts, relatively unchanged from the previous week.

During the survey period, gold prices held solid support above $1,750 an ounce. The Survey didn't cover Wednesday’s rally in gold after Federal Reserve Chair Jerome Powell said that it would be appropriate for the central bank to slow the pace of rate hikes starting in December.

"Now that Fed Chair Powell has convincingly signaled he is ready to reduce the pace of policy rate increases starting in December, and given broad market speculation that the world has seen the worst of US rate increases and that inflation will come under control sooner, rather than later, gold prices have propelled into an upward trajectory toward $1,800/oz," said commodity analysts at TD Securities in a note Friday. "This should see length increase again in the coming week. However, with inflation still a big problem, and strong wage and jobs data persisting, long position shedding may materialize again, should the Fed not be as dovish as currently expected on Dec. 14."

Gold's utility as a global currency will support prices in 2023 - MarketVector's Yang

The silver market also benefits from significant short covering. The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures fell by 664 contracts to 36,960. At the same time, short positions fell by 2,558 contracts to 23,367.

Silver's net length now stands at 13,593 contracts, up only slightly from the previous week.

While recession fears are growing, sentiment in the silver market is slowly starting to shift as the green energy transition is driving industrial demand for silver. Analysts have said that the ongoing energy crisis in Europe means growing demand for solar energy should continue to support silver through 2023.

The short covering in silver helped prices push solidly above near-term support at $21 an ounce.

Similar to gold, silver started to shine after Powell's dovish comments. Investors will have to wait until Friday in the next COT report to see exactly how positioning has changed in the marketplace following the Fed Chair’s remarks.

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.