(Kitco News) - Gold and silver are experiencing a surge in momentum as hedge funds pile into new bullish bets on the precious metals, with the Federal Reserve preparing to embark on a new easing cycle, according to the latest trade data from the Commodity Futures Trading Commission.
Speculative positioning in gold was already trading at a four-year high and surged further last week. The CFTC's disaggregated Commitments of Traders report for the week ending Sept. 17 showed that money managers increased their speculative gross long positions in Comex gold futures by 28,199 contracts to 241,844. At the same time, short positions rose by 2,299 contracts to 25,489.
The bullish momentum helped gold prices maintain solid support above $2,600 an ounce. Gold’s net length now stands at 216,355, marking a fresh four-year high.
While some analysts have noted that bullish positioning in gold appears somewhat overextended, it remains well-supported after the Federal Reserve met market expectations by cutting rates by 50 basis points. The committee also signaled that it expects long-term rates to fall to 3% by 2026.
“As the U.S. central bank increasingly tilts policy toward supporting maximum employment, investors believe that the rate environment will become more accommodative, lowering the carry and opportunity costs of holding gold. With aggressive easing expectations and fiscal deficits, many investors view gold as providing good diversification and protection against low real yields and a potential decline in risk assets,” said commodity analysts at TD Securities.
Last week, TDS covered a tactical short position in gold. Analysts at the Canadian bank had seen gold as overbought and expected the Federal Reserve to take a more cautious approach to its easing cycle. TDS closed its short position with a 4.4% loss.
Although some analysts have said that speculative positioning in gold is overextended, others believe the market still has significant potential. Some note that gold-backed exchange-traded funds are only just beginning to see inflows after a lackluster start to 2024.
The world’s largest gold-backed ETF, SPDR Gold Shares (NYSE: GLD), saw its holdings increase by 12 tonnes last week, further narrowing its year-to-date losses to just 3.72 tonnes.
“The ETF demand is just getting started, and that will generate a whole new wave of momentum for the entire market,” said Chris Mancini, Associate Portfolio Manager of The Gabelli Gold Fund (GOLDX).
It’s not just gold that is seeing renewed bullish momentum; hedge funds are also jumping into silver at a breakneck pace.
The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures increased by 11,608 contracts to 51,074, while short positions fell by 2,190 contracts to 11,455.
Silver’s net length now stands at 39,619 contracts, a two-month high. During the survey period, silver prices held support above $31 an ounce as it began to see significant volatility.
Analysts note that silver continues to benefit from gold’s record run; however, some also point out that slower economic growth has prompted the Federal Reserve’s easing cycle. Since more than 50% of silver demand comes from industrial uses, weak economic activity could weigh on silver in the near term.
Some analysts suggest that silver investors should pay more attention to China’s central bank. Any efforts to support China’s slowing economy could be positive for silver.
Arslan Ali, market analyst at FxEmpire, said he expects silver to surge to $31.75 as the People’s Bank of China pumps liquidity into its economy and financial markets.
“As liquidity flows into the economy, manufacturing activity may pick up, driving demand for silver in industrial applications and further stabilizing its prices. Silver’s role as a safe-haven asset, combined with a weaker dollar and rising industrial demand, points to a potential uptick in prices as 2024 progresses,” he said in a note on Monday.
