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Gold, silver need to see new bullish interest from hedge funds

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(Kitco News) - Hedge funds continue to reduce their bearish bets in gold; however, analysts note that bullish sentiment needs to improve if gold prices have a chance to break initial resistance above $1,980 an ounce, according to the latest data from the Commodity Futures Trading Commission.

The CFTC's disaggregated Commitments of Traders report for the week ending Aug. 29 showed money managers decreased their speculative gross long positions in Comex gold futures by 387 contracts to 120,222. At the same time, short positions fell by 11,510 contracts to 69,857.

Many analysts have noted that gold and silver are caught in a neutral trading range as the sector continues to be dominated by rising bond yields and solid strength in the U.S. dollar.

“Investors are net long ~$30bn worth of Precious Metals, but this is slap bang within the recent $20-$40bn range, essentially very neutral and mimicking the aggregate consolidation of price action in the space,” said Nickey Shiels head of metals strategy at MKS PAMP, in a note.

According to updated positioning, the gold market is now net long 50,365 contracts, up only slightly from the previous week’s increase, which was driven by a sizeable short squeeze. Despite the continued short covering, gold prices were unable to break resistance at $1,980 an ounce, with prices falling to support around $1,950 an ounce within the survey period.

Although gold has been reasonably resilient through 2023, some analysts have said that stubborn inflation, as oil prices trade near their highest level in nearly a year, is forcing the Federal Reserve to maintain higher-for-longer monetary policies, which creates further headwinds for gold.

Although gold is not expected to break out of its trading range, some analysts have said it has room to test support around $1,900 an ounce in the current environment.

“With oil prices hitting highs not seen since early-November 2022, OPEC+ extending supply cuts into late-2023 and the US economy not slowing sharply, rates and the broad dollar moved higher, which kicked off gold's drift lower,” wrote analysts at TD Securities. “These developments alongside high energy costs may well prompt the gold market to start pricing higher rates and a firmer dollar for longer, which may well force prices to move lower toward support below $1,900/oz.”

The silver market is also losing momentum as investors reduce their overall exposure to the precious metal.

The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures fell by 5,334 contracts to 38,143. At the same time, short positions fell by 2,203 contracts to 24,795.

The outsize drop in bullish bets caused silver’s net length to fall to 13,348. The drop comes after two weeks of significant increases. During the survey period, silver prices were unable to hold support at either at the $25 or $24 levels.

Some analysts have said that silver prices are at risk of testing support at the bottom end of the range around $22.50 an ounce.

Although silver continues to struggle in the near term, many analysts have said that it is challenging to be long-term bearish on the metal as it continues to see solid industrial demand as a critical metal in the global green energy transition.

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.