(Kitco News) - Optimism in the gold market continues to be short-lived as hedge funds renewed their bearish bets, keeping prices at around $1,650 an ounce.
The Federal Reserve's aggressive monetary policy action continues to be the biggest headwind for gold prices as rising interest rates are supporting the U.S. dollar at its highest level in 20 years.
In a report Monday, commodity analysts at Société Générale noted that the precious metal market saw total outflows of $4.1 billion in futures markets last week as investors continue to react to hotter-than-expected inflation data.
"The U.S. core CPI increased 6.6% from a year ago, the strongest y-o-y jump since 1982," the analysts said. "This leaves room for the Fed to increase interest rates more aggressively, suggesting that another 75bp hike in November is highly likely."
Commodity analysts at TD Securities also said that rising inflation will continue to weigh on gold and silver prices.
"Inflation's rising persistence suggests the Fed is unlikely to stop hiking preemptively, which points to a prolonged period of restrictive rates that should continue to sap interest from institutional investors," the analysts said.
The CFTC disaggregated Commitments of Traders report for the week ending Oct.18 showed money managers decreased their speculative gross long positions in Comex gold futures by 5,021 contracts to 73,344. At the same time, short positions jumped by 15,097 contracts to 99,042.
After two weeks of bullish momentum, the trend sharply reversed, with gold's net short positioning increasing to 25,698 contracts.
Gold prices trended along support at $1,650 an ounce through most of the survey period. After falling to a fresh two-year low, the precious metals were thrown a lifeline Friday when the Wall Street Journal said that some members of the Federal Reserve would support slowing the pace of rate hikes after the November meeting.
However, some analysts have noted that investors are reluctant to jump back into the gold market until there is definitive proof that the aggressive rate hikes are coming to an end.
"Appetite towards the precious metal is likely to remain shaky as investors evaluate whether the Fed will indicate next week if it will remain hawkish after raising interest rates by another 75 basis points in November," said Lukman Otunuga, senior research analyst at FXTM.
The CME FedWatch Tool shows that markets are nearly 50/50 split on whether the Fed will raise interest rates by 50 or 75 basis points in December.
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Commodity analysts at Commerzbank noted that gold's rally Friday shows the potential in the marketplace when the U.S. central bank eventually starts to slow its monetary policy tightening.
"This is not the case as yet, however, which is why most of the price gains were reversed again. Investors are still giving gold the cold shoulder, thereby generating persistent headwind," the analysts said.
Along with gold, silver also continues to struggle as sentiment turned solidly bearish.
The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures rose by 2,872 contracts to 36,365. At the same time, short positions rose by 10,699 contracts to 44,077.
Silver's fell back into a net short position of 7,712 contracts. During the survey period, silver prices traded at around $18.50 an ounce.
While investment demand for silver continues to struggle, many market analysts have noted that the precious metal continues to see unprecedented demand for physical bullion, which is providing some support for the precious metal.
