(Kitco News) - After increasing their bullish bets in gold for the last two weeks, hedge funds took a break in the precious metals as Federal Reserve interest rate hike expectations remain highly fluid, supporting the U.S. dollar.
Analysts have noted that gold has struggled to hold the $1,800 level as early expectations that the Federal Reserve could start to pivot on its aggressive monetary policy tightening by September proved premature.
Markets are split roughly 50/50 that the Federal Reserve will raise the Fed Funds rate by 50 or 75 basis points next month. Analysts note that shifting interest rate expectations is driving bond yields higher. At the same time, they are also driving the U.S. dollar higher, with the dollar index holding solid support well above 104 points.
Gold has been susceptible to U.S. dollar strength through most of 2022 compared to other commodities. Ole Hansen, head of commodity strategy at Saxo Bank, noted that out of 24 commodities, only oil and gold did not benefit from broad-based buying last week.
"Hedge funds were net buyers for a third week with the total net long across the 24 major commodity futures tracked in this update rising by 14% to reach a seven-week high at 988k lots," he said. "The 123k lot increase was split equally between new longs being added and short positions being scaled back, and overall, the net increase was broad, led by natural gas, sugar, cattle and grains, with most of the selling being concentrated in crude oil and gold."
The CFTC disaggregated Commitments of Traders report for the week ending Aug. 16 showed money managers decreased their speculative gross long positions in Comex gold futures by 3,248 contracts to 100,013. At the same time, short positions rose by 1,113 contracts to 60,392.
Gold's net length now stands at 36,373 contracts, relatively unchanged from the previous week. During the survey period, gold prices fell below $1,800 an ounce after failing to break any major resistance levels.
John Reade, chief market strategist at the World Gold Council, described gold's speculative flows as a snooze fest.
Gross longs fell about 11t; gross shorts increased by 9t.
— John Reade (@JReade_WGC) August 22, 2022
Pretty much zzzzz, tbh.#Gold pic.twitter.com/yoqf3HwA7A
Analysts warn that gold bullish speculative positioning should continue to fall as prices are starting this week below $1,750 an ounce.
Commodity analysts at TD Securities remain bearish on gold, warning that the precious metal has yet to see a capitulation move. The Canadian bank said this week's central bank symposium at Jackson Hole could be the catalyst that ignites a new wave of selling.
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Meanwhile, the silver market continues to underperform gold as hedge funds appear to be reducing their overall exposure to the precious metal due to ongoing recession fears.
The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures fell by 688 contracts to 31,781. At the same time, short positions fell by 1,140 contracts to37,872.
Silver's positioning remains net short by 6,091 contracts, roughly unchanged from last week. During the survey period, silver prices struggled to hold support at around $20 an ounce.
Since the report, silver prices have lost significant ground as prices start the week below $19 an ounce.
Last week TD Securities announced a tactical short position in silver as they expect recession fears to weaken global economic growth leading to lower demand for the precious metal.
"Silver markets appear particularly vulnerable to additional downside, given their little exposure to the rise in supply risk premia that has supported industrial metals. We also expect its precious-metal allure to fade into the Jackson Hole symposium, where we expect Chair Powell may pushback against market expectations that rate cuts may immediately follow the hiking cycle," the analysts said.
Expectations of weaker economic growth also continue to take their toll on the copper market even as prices see a modest short-squeeze rally.
Copper's disaggregated report showed money-managed speculative gross long positions in Comex high-grade copper futures fell by 1,118 contracts to 36,227. At the same time, short positions fell by 3,779 contracts to 53,400.
Positioning in the copper market remains solidly bearish with a new net short position of 17,173 contracts. Speculative positioning in copper has been relatively unchanged for the last three weeks as prices trade around $3.60 an ounce.
