(Kitco News) - For the third consecutive week, speculative investors increased their bullish bets on gold, in part due to growing uncertainty surrounding the sustainability of U.S. government debt, reigniting the debasement trade.
Although bullish speculative positioning has reached its highest level so far this year, sentiment remains below where it was 12 months ago and substantially lower compared to the start of the year.
The CFTC's disaggregated Commitments of Traders report for the week ending Aug. 18 showed money managers increased their speculative gross long positions in Comex gold futures by 5,961 contracts to 154,595. At the same time, short positions increased by 1,975 contracts to 12,947.
Gold’s net length now stands at 141,648 contracts, the highest level since late September. In the last three weeks, gold’s net length has increased by 18% and is seeing its longest consecutive increase since June.
According to Bank of America’s August Global Fund Manager Survey, gold still has the potential to move higher as sentiment has been fairly lackluster.
The survey, published last week, said that gold appears to be at its most undervalued since March 2023. According to the report, 16% of fund managers said gold was undervalued, compared to 6% in July.
“Our Commodity Strategy team's model suggests current investor buying is more consistent with a gold price of $4,000 and investor purchases must accelerate before the price can reach $5,000,” said Candace Browning Platt, Head of Global Research at BofA, in a note Sunday.
“Central bank buying is already doing its part and was well above the 12-month average in June. A dovish Jackson Hole gathering this week would be bullish.”
Although the gold market has seen a significant recovery from July’s lows, some analysts note that the market still has plenty of potential as the $5,000 level starts to come into focus. Speculative momentum is still down from its 12-month high, when net length stood at 165,519 contracts. Meanwhile, gold’s recent speculative peak came in early January 2025, when the market was net long by 215,000 contracts.
Although sentiment in the gold market has turned demonstrably bullish, some analysts also note that the precious metal continues to face headwinds, as rising oil prices are driving inflation fears and could force the Federal Reserve to raise interest rates before the end of the year.
“USD debasement fears should see gold be well-supported in the coming weeks, as the Fed has not been sending a clear signal it is ready to fight higher inflation,” said Bart Melek, Head of Commodity Strategy at TD Securities. “However, it's too early for the metal to surge to our $5,350/oz target, given the risk rates on the short term may eventually rise as crude grinds higher.”
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