(Kitco News) - Hedge funds are increasingly focusing on gold and silver with speculative positioning reaching a significant milestone last week, according to trade data from the Commodity Futures Trading Commission (CFTC).
Although gold didn’t see a substantial increase in bullish bets last week, net bullish positioning rose above 200,000 contracts for the first time in four years. This milestone was achieved as gold prices continued to trade near record highs above $2,500 an ounce.
Instead, the increase in bullish positioning resulted from short covering, as hedge funds exited their short positions.
The CFTC's disaggregated Commitments of Traders report for the week ending August 27 showed that money managers decreased their speculative gross long positions in Comex gold futures by 4,166 contracts to 217,976. At the same time, short positions fell by 11,152 contracts to 17,685.
Gold’s net positioning now stands at 200,291 contracts. During the survey period, gold prices managed to consolidate above $2,550 an ounce.
“Gold had a very quiet week, with near-record price levels not attracting any profit-taking from funds holding an elevated net long,” said Ole Hansen, head of Commodity Strategy at Saxo Bank.
Because of gold’s elevated positioning, analysts note that the market poses a short-term risk, though momentum indicators are not yet overbought. The gold market is less than 38,000 contracts away from its 2019 record highs.
“Alternative views on the positioning suggest that Western money managers can continue to increase their long positions,” said commodity analysts at TD Securities in a note on Monday. “A straightforward analysis of CFTC positioning data indicates that speculator positioning is only slightly frothy and well below its historical maximum. However, our advanced positioning analytics suggest that, considering leverage, the market is already effectively maxed out.”
The analysts warned that gold prices are at risk of falling back to $2,400 an ounce in the near term.
However, other analysts remain relatively optimistic despite the elevated risk. Matt Simpson, market analyst at City Index, noted that when adjusted for total open interest, net-long exposure is very close to reaching a record high.
“Yet that is because total open interest is relatively low by historical standards, suggesting that many investors remain on the sidelines, skeptical of the gold rally,” he said. “And that is bullish overall.”
Along with gold, silver is also attracting bullish interest from hedge funds.
The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures increased by 3,399 contracts to 42,916. Meanwhile, short positions rose by only 51 contracts to 9,729.
During the survey period, silver prices pushed above $30 an ounce. However, the market has been unable to maintain those gains, as prices have been testing support near $28 an ounce.
While many investors are extremely bullish on silver due to industrial demand outpacing supply, some analysts have warned that a slowing economy could weigh on silver’s industrial demand, potentially putting pressure on prices.
