(Kitco News) - After months of relatively quiet activity, hedge funds have jumped back into the gold market. However, analysts warn that speculative positioning could trigger further liquidation, as prices were unable to hold fresh record gains last week.
The CFTC's disaggregated Commitments of Traders report for the week ending July 14 showed money managers increased their speculative gross long positions in Comex gold futures by 34,520 contracts to 216,502. At the same time, short positions increased by 7,455 contracts to 20,510.
Gold’s net length jumped to 184,532 contracts, its highest level since March 2020. The precious metal saw its biggest speculative jump since March when prices broke above $2,150 and eventually surged to $2,448 an ounce.
In the last few months, gold prices have been consolidating. Analysts noted that speculative interest remained fairly stable at elevated levels. They have also pointed out that gold has remained well-supported in its consolidation phase due to robust safe-haven demand stemming from geopolitical uncertainty and central bank purchases.
However, some analysts note that the latest move to a fresh record high could prove too tempting for investors looking to take profits.
Last week, as speculative interest rose, gold prices hit a new all-time high above $2,480 an ounce. However, since last week’s highs, the market has seen solid selling pressure. August gold futures last traded at $2,386.60 an ounce, down 0.52% on the day.
Analysts have said that its current price level is a critical short-term support line that must hold for gold to maintain its new breakout momentum.
In a report published Friday, a commodity analyst at TD Securities noted that last week’s rally created asymmetrical downside risks for the first time in months.
“Our analysis of flows suggests the window for downside is open in the yellow metal, and a pause in gold’s bull market could be in store,” the analysts said in the note.
Although the Canadian bank expects gold prices to fall below $2,380 in the near term, the analysts said that they remain long-term bulls.
In a comment to Kitco News, Julia Cordova, Founder of Cordovatrading.com, said that gold needs to hold support between $2,373.50 and $2,381.20.
She added that she doesn’t see last week’s rally as a false breakout; however, if her support levels don’t hold, gold could drop back down to $2,325.
James Stanley, Senior Strategist at Forex.com, said that he is not surprised gold is seeing some selling pressure, as momentum indicators moved into overbought territory. However, he also noted that he remains bullish on gold because of robust fundamental support.
While investors continue to see weakness in gold as a buying opportunity, the silver market continues to struggle. Hedge funds remain reluctant to take significant positions in silver.
The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures rose by 686 contracts to 55,858. At the same time, short positions rose by 1,913 contracts to 19,183.
The slight increase in short positioning pulled silver’s net length down to 36,675, roughly unchanged from the previous week. Speculative positioning has remained fairly stable since early April.
During the survey period, silver prices dropped sharply below $30. September silver futures last traded at $29.22 an ounce.
Cordova said that while silver is struggling, she remains optimistic that it can regain its luster.
“Silver followed through on the confirmed weekly bearish divergence from last week, and the weekly close was outside of the possible pennant structure to the downside, but I think it is likely to outperform the yellow metal this week if it can regain $29.855. $28.41 is strong support," she said.
