(Kitco News) - The gold market could have further room to run above $3,000 an ounce as one key segment of the marketplace is seeing a shift in momentum, while another is just waking up.
Speculative investors have been aggressively liquidating their long gold positions for the last six weeks, with the precious metal’s net length falling to a three-month low; however, that selling pressure came to an end last week as the latest trade data from the Commodity Futures Trading Commission showed hedge funds have now started covering their short bets.
The CFTC's disaggregated Commitments of Traders report for the week ending March 11 showed that money managers decreased their speculative gross long positions in Comex gold futures by 58 contracts to 204,907. At the same time, short positions fell by 976 contracts to 37,331.
Gold’s net positioning was relatively unchanged from the previous week and currently stands at 167,576 contracts. Since its highs in late January, gold’s bullish positioning has declined by 22%.
Commodity analysts at TD Securities said that the gold market could see some FOMO (fear of missing out), as speculative investors jump back into the market with prices hovering around $3,000 an ounce, which is seen as an important psychological area.
“With risk-taking budgets under pressure amid the pain in stock markets, macro funds have counter-intuitively shrunk their net length in gold to its lowest levels since the summer of 2024 — when gold prices traded roughly $500/oz lower than they do today,” the analysts said in a note. “Ultimately, we think this will add fuel to FOMO, particularly as prices break into new territory for human psychology north of $3000/oz. In contrast, should global macro price action reverse, the scope to sell is limited, with macro funds having already shed substantial positions and given CTAs hold a very large margin of safety before the first selling program kicks in.”
TDS expects gold prices to establish a new trading range above $3,000 this year.
While speculative fund managers have been taking profits in gold, prices have been supported by another segment of the market that has appeared to have woken up just in time. After years of lackluster interest, investment demand in gold-backed exchange-traded funds has surged higher since last month.
According to data from the World Gold Council, 72.2 tonnes of gold—valued at $6.8 billion—flowed into North American ETFs last month, the largest single-month inflow for the region since July 2020 and the strongest February on record.
ETF demand has remained fairly consistent through March. Data from the WGC showed that global ETF holdings increased by 32.7 tonnes last week. Of that, 22.6 tonnes of gold flowed into North American-listed funds.
Analysts have said that even at the current pace, the ETF market still has plenty of room to grow, as global holdings are down about 20% from the all-time highs reached in 2020.
“Gold-backed ETFs are finally starting to see inflows after years of outflows,” said Chris Mancini, Associate Portfolio Manager of the Gabelli Gold Fund (GOLDX), in a comment to Kitco News. “This is very important because ETFs are the marginal source of demand and supply of physical gold.”
Mancini added that gold’s drive to $3,000 is the next leg in the rally that started two years ago after Russia invaded Ukraine and Western governments confiscated Russia’s dollar and euro-based reserves. As a result, many emerging market central banks have diversified away from the U.S. dollar and into gold.
Russia’s invasion, along with the war between Hamas and Israel that began more than a year ago, has created significant geopolitical uncertainty around the world.
Mancini noted that geopolitical uncertainty has ratcheted higher after President Donald Trump ignited a trade war placing tariffs on imported goods into the U.S.
In this environment Mancini has said that gold, because of its low correlation to other assets and its role as a global currency, makes it an attractive safe-haven asset.
“I think investors should always have some gold as a hedge against currency debasement and the risk of a breakdown in the dollar reserve system. If the probability of either of these events increases, then gold is not too expensive,” he said.
David Miller, Portfolio Manager of GOLY, said that the U.S. weaponization of the dollar against Russia has made gold the “must-own asset” among central banks.
Global central bank gold reserves have increased by more than 1,000 tonnes annually over the last three years, well above the average inflows in the last decade.
Miller added that this demand has created solid support in the marketplace.
“Countries that are not aligned with the US foreign policy agenda must own gold reserves or they risk being in the same possession as Russia. The combination of deficit spending, tariffs, and SWIFT weaponization has created a big bull run for gold that is likely to continue,” he said in a comment to Kitco News.
Robert Minter, Director of ETF Strategy at abrdn, told Kitco that he also expects central bank demand to support gold’s long-term rally. He said he sees gold prices rising to $3,300 an ounce this year.
Minter added that investor demand has become the new driving force in the marketplace.
“Investors have started to buy more gold via ETFs, due to lower rates, and as part of a stagnation theme,” he said.
