(Kitco News) - Gold's ability to hold the line around $1,800 an ounce is finally starting to attract new bullish speculative interest as hedge funds increase their long exposure in the precious metal and further reduce their short bet.
According to some analysts, investors are testing the precious metals markets as falling inflation raised expectations that the Federal Reserve will start to slow the pace of its rate hikes with its tightening cycle close to ending.
Commodity analyst from Société Générale noted that the precious metals market saw inflows of $3.6 billion last week following weaker-than-expected inflation data for November.
"Although lower inflation would typically be bearish for gold, the bullion has been supported recently by the prospect of the Fed slowing interest rate increases. Because gold is a non-interest generating asset, a lower peak interest rate is bullish for the bullion," the analysts said in a note Monday.
The CFTC's disaggregated Commitments of Traders report for the week ending Dec. 13 showed money managers increased their speculative gross long positions in Comex gold futures by 10,108 contracts to 103,737. At the same time, short positions fell by 3,854 contracts to 66,288.
The gold market is now net long by 37,449 contracts, reaching its highest level since late-August.
This is the first time gold has seen any significant bullish interest since early October.
"After weeks of short covering, money managers have started to build long exposure in the gold market once again. With inflation data coming in below expectations, market participants anticipated the upcoming FOMC meeting would tilt firmly toward the dovish side, seeing the yellow metal move above $1800/oz once again," said analysts at TD Securities in a note.
However, TDS does expect the Federal Reserve's continued tightening into 2023 to weigh on gold prices through the first quarter.
John Reade, chief market strategist at the World Gold Council, said in a comment on Twitter that gold has room to move higher.
"Gross long positions remain pretty subdued by previous periods of gold strength, while gross shorts remain a bit on the high side," he said.
Gross long posiitons remain pretty subdued by previous periods of #gold strength, while gross shorts remaina bit on the high side.
— John Reade (@JReade_WGC) December 19, 2022
This suggests that there is room for #gold to run further should sentiment improve.
Along with gold, investors are also getting bullish on silver as hedge funds increased their long exposure to the grey metal and significantly dropped their short bets.
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The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures rose by 3,488 contracts to 401,880. At the same time, short positions fell by 2,872 contracts to 21,182.
Silver's net length now stands at 19,698 contracts. Bullish positioning is at its highest level since late May.
During the survey period, silver prices rallied above $24 an ounce, hitting a seven-month high.
