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Gold and silver see new bullish momentum as hedge funds ditch more bearish bets

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(Kitco News) - Gold and silver continue to benefit from hedge funds ditching their bearish bets; with prices holding solid support levels, and generating upward momentum, new bullish bets are entering the marketplace, according to the latest trade data from the Commodity Futures Trading Commission.

The new bullish momentum comes as gold prices continue to test resistance around $2,000 an ounce and silver has broken a long-term downtrend as prices hold above $24 an ounce. Looking ahead, analysts note that bullish speculative positioning in both metals is well below historical norms, meaning there is plenty of upside for prices as more investors jump into the market.

"Silver, in particular, which has been net short for weeks, has a lot of room to run higher," said Ole Hansen, head of commodity strategy at Saxo Bank.

In a recent interview with Kitco News, Kevin Grady, president of Phoenix Futures and Options, said he expects more investors to jump into the gold market as central banks continue to buy gold, creating a solid floor in the marketplace.

"Central banks aren't fickle investors who will sell their gold if the price drops. They are buying gold for the long term," he said. "This is creating significant strength in the marketplace. Investors are realizing that there is value in the market and are quickly jumping in to buy the dips."

the latest CFTC data shows that investors are finally starting to take notice. The CFTC's disaggregated Commitments of Traders report for the week ending March 28 showed money managers increased their speculative gross long positions in Comex gold futures by 5,440 contracts to 130,530. At the same time, short positions dropped by 12,491 contracts to 31,370.

The gold market is now net long by 99,160 contracts, up 22% from the previous week. Bullish sentiment is now at its highest level since May 22.

Along with central banks completely transforming the precious metals market, analysts expect the ongoing banking crisis to drive safe-haven demand for gold and silver higher.

"Gold maintained its strong performance from the start of the Silicon Valley Bank (SVB) story, reflecting expectations that an end to US monetary tightening might be near," said commodity analysts at Société Generale.

The French bank noted that $3.5bn flowed into the gold market last week.

OPEC oil cuts won't drive inflation high enough to stop gold's run above $2,000

After seeing bearish positioning for the last four weeks, the silver market has now turned net bullish, driven by short covering.

The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures rose by 1,338 contracts to 31,927. At the same time, short positions fell by 9,220 contracts to 21,646.

The silver market is now net long by 10,281 contracts, its highest level since the end of January. During the survey period, silver prices saw a solid move above $23.50 an ounce. Some analysts have said that the market’s positioning should continue to improve as prices hold above $24 an ounce.

The silver market has outperformed gold in the last two weeks, with the gold-silver ratio recently falling to a two-month low on Friday. Some analysts note that silver is seeing the best of two worlds. Improving economic conditions in China are driving industrial demand for silver; at the same time, it continues to benefit as a monetary metal as markets look for the Federal Reserve to cut rates before the end of the year.

However, not everyone is convinced that silver is ready to take off. Hansen said he is bullish on silver, but he added that while China’s economy is improving, the recovery is not consistent, which means industrial demand for the precious metal could still be weak.

Hansen said he is watching to see if silver prices will continue to hold support above $23.90 an ounce.

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.