(Kitco News) - For the eighth consecutive week, hedge funds increased their bullish exposure in gold and reduced their bearish bets, according to the latest trade data from the Commodity Futures Trading Commission.
The CFTC's disaggregated Commitments of Traders report for the week ending Jan. 24 showed money managers increased their speculative gross long positions in Comex gold futures by 7,279 contracts to 131,501. At the same time, short positions fell by 3,223 contracts to 51,622.
The gold market is now net long by 79,879 contracts, holding at last week's nine-month high. During the survey period, gold prices tested resistance just below $1,950 an ounce.
So far this year, gold investors have bought 2.6 million ounces of gold in speculative positioning and exchange-traded funds, Nicky Shiels, head of metals strategy at MKS PAMPs, said in a note Monday.
While gold has solid technical bullish momentum, analysts continue to warn investors that the precious metal is ripe for a correction as the price hits resistance at a nine-month high.
Shiels noted that hedge funds are gross long 16 million ounces of gold, still down from last year's peak of 21 million ounces. She added that while gold has some room to move higher, it could be sensitive to the Federal Reserve's monetary decision Wednesday.
"It's getting toppy, but not quite there," Shiels said. There's been a lot of noise around this recent length into a very pivotal FOMC where Powell is likely to push back on market expectations & lean hawkish."
Since November, gold has benefited from shifting expectations that Federal Reserve's aggressive monetary policy stance has softened. Markets have all but fully priced in a 25 basis point hike from the Federal Reserve Wednesday, which has pushed the U.S. dollar to a seven-month low.
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A growing chorus of analysts has said there is a risk that the Federal Reserve comes out more hawkish than markets expect, which would boost the U.S. dollar and weigh on gold prices.
"As we've said many times before, getting inflation down from 8% to 4% is the easy part; getting it from 4% to 2% is the hard part and that's what markets continue to miss. The Fed needs to continue reminding the markets that the road ahead remains difficult and full of surprises," said currency analysts at Brown Brother's Harriman. "Any expectations of easing in H2 remain far-fetched."
Along with growing monetary policy risks, analysts at TD Securities said that they continue to monitor Asian demand as it looks to weaken.
"Gold buying activity continued this week, despite largely muted price action with Shanghai traders on holidays. Money managers added to their longs and covered shorts, which more than offset the growth in other reportables' shorts," the analysts said. "We will continue to monitor our gauge of Shanghai gold positioning closely to gauge whether Chinese buying appetite will dry up post Lunar New Year celebrations."
While investors continue to jump into the gold market, bearish sentiment continues to grow in the silver market.
The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures fell by 2,608 contracts to 43,507. At the same time, short positions rose by 4,039 contracts to 23,686.
Silver's net length now stands at 19,821 contracts, down 25% from the previous week. During the survey period, silver prices continued to hover around $24 an ounce, with a brief drop below $23.
In a recent interview with Kitco News, Carley Garner, co-founder of the brokerage firm DeCarley Trading, said that the silver market could be signaling consolidation for gold.
"I'm looking at it at silver as a bit of a bellwether because it has both industrial and precious metals properties. It's lagging both copper and gold. To me, that is a red flag that maybe, the metals markets in general, including copper and gold, are due for a little bit of a pullback before we resume the rally," she said.
