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Hedge funds still neutral on gold, silver as economic uncertainty supports prices

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(Kitco News) - The gold market continues to go nowhere in a hurry as hedge funds maintain relatively neutral positioning in the precious metal ahead of last week’s U.S. monetary policy decision, according to the latest data from the Commodity Futures Trading Commission.

The CFTC's disaggregated Commitments of Traders report for the week ending Sept. 19 showed money managers increased their speculative gross long positions in Comex gold futures by 3,435 contracts to 121,172. At the same time, short positions fell by 9,384 contracts to 73,782.

The gold market is now net long by 47,390 contracts, relatively unchanged from the previous week’s two-week low. During the survey period, gold prices trading either side of $1,950 an ounce.

"The bulk of the buying was driven by short covering as funds cut bearish bets ahead of FOMC and despite an ongoing rise in bond yields and the dollar trading near a six-month high," said Ole Hansen, head of commodity strategy at Saxo Bank.

Analysts note that gold has been trapped in a neutral trading range since May, caught in a tug-of-war between growing economic uncertainty and the Federal Reserve’s hawkish stance on U.S. monetary policy.

Last week, the Federal Reserve left the Fed Funds rate unchanged between 5.25% and 5.50% but maintained its stance that interest rates need to remain in restrictive territory for the foreseeable future to bring down inflation. To harden its "higher-for-longer" stance, the central bank expects to see two interest rate cuts in 2024, down from four in its previous estimate.

"Gold speculators added back length and covered shorts heading into the FOMC. However, Chair Powell delivered a hawkish surprise, reiterating the "higher for longer" narrative that has been the worst fear for the gold bugs. This has since prompted CTAs to notably shed their length and add a net short position. Looking forward, the economic data will be instrumental in determining the yellow metal's direction," said commodity analysts at TD Securities. "At the same time, strong physical markets continue to provide an offset to traditional macroeconomic relationships, underscoring the resilience in the yellow metal's prices against the sharp rise in yields."

In other comments to Kitco News, TD Securities said they see further potential for gold as a safe-haven asset as the Federal Reserve’s monetary policy stance raises the risk of a recession.

At the same time, analysts have also said that the U.S. growing deficit will provide support for the precious metal. Last week, the U.S. Treasury reported that the debt surpassed $33 trillion for the first time ever.

"All major governments & central banks are huge deficit spenders funded by massive money printing (debasement). [There] are no "clean shirts" vs. gold," said Fred Hickey, creator of The High-Tech Strategist investment newsletter, in a social media post.

The silver market also remains in neutral territory even as the market attracted some speculative bargain hunters.

The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures rose by 985 contracts to 31,346. At the same time, short positions rose by 199 contracts to 31,346.

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Silver net length increased to 1,354 contracts, up from the previous positioning of 568 contracts. During the survey period, silver prices traded in a range between $22.90 and $23.50 an ounce.

Analysts note that silver has been outperforming gold as the gold/silver ratio has fallen from a recent high above 84 points to below 82 points.

Many analysts have turned significantly bullish on silver as the market continues to see a growing supply and demand imbalance. Demand for silver remains high as its industrial usage in the solar power sector grows; at the same time, mine supply continues to fall.

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.