Gold's eventual push above $1,850 will attract bullish hedge fund bets - analyst
Hedge funds are still a little reluctant to jump into the gold market even as they reduced their bearish bets with gold prices pushing back above $1,800, according to the latest data from the Commodity Futures Trading Commission.
Some analysts have said that a break of $1,850, which also represents gold's 200-day moving average, could be the signal that hedge funds and money managers are waiting to increase their bullish speculative positioning into the gold market. Some analysts noted that it is only a matter of time before investors turn to gold as an inflation hedge as the Federal Reserve is not expected to tighten its ultra-accommodative monetary policies any time soon.
CFTC disaggregated Commitments of Traders report for the week ending May 4 showed money managers increased their speculative gross long positions in Comex gold futures by only 290 contracts to 117,434. At the same time, short positions fell by 2,684 contracts to 63,809.
Gold's net length currently stands at 53,625, down up nearly 6% from the previous week. During the survey period, the gold marketed started is a successful drive through $1,800.
"Money managers increased gold length last week by covering relatively large amounts of their short exposure, as the rate environment became more favorable to the yellow metal and there was a growing probability of robust price increases," said commodity analysts at TD Securities in a note to clients Friday.
Commodity analysts at Commerzbank said the latest CFTC report is a little outdated because the gold's rally started at the end of the latest survey period. The bank added that a surge in investor demand for gold-backed exchange-traded products provides a better picture of the precious metal's newfound momentum.
"Real interest rates are likely to slide further into negative territory, which should make gold more attractive as a non-interest-bearing investment and inflation hedge. In view of this development, investors appear to be showing greater interest in gold ETFs again. The world's largest gold ETF, the SPDR Gold Trust, reported inflows of nearly six tons on Friday – its most pronounced daily inflow since mid-January," the analysts said.
Analysts at TD Securities said that they expect it is only a matter of time before gold prices push through $1,850 an ounce.
"Given that US nominal rates trended lower, even as breakevens further along the curve increased, points to additional upward price pressure which should see additional short covering and new longs in the coming weeks. A disappointing jobs report, which featured higher than expected wage increases and unemployment rates, suggests that gold is well positioned to challenge technical resistance near $1,850/oz," the analysts said.
Economists at OCBC Bank said in a note Monday that they are also watching $1,850 closely.
"The $1800 handle now appears to be the new support level for gold and we expect buying interest for gold in the short term on the back of the poor labour market report from the US," the analysts said.
Although hedge funds are reluctant to jump into the gold market, they continue to pile into silver as prices as speculative bullish interest reach its highest level since the start of the year.
The disaggregated report showed money-managed speculative gross long positions in Comex silver futures rose by 1,933 contracts to 66,702. At the same time, short positions dropped by 4,065 contracts to 24,148.
Silver's net length currently stands at 42,554 contracts, up 16% from the previous week.
During the survey period, silver prices were fairly volatile as prices tested critical resistance around $27 an ounce. With silver prices continuing to outperform gold, the gold/silver ratio has dropped to around 66.32 points, near its lowest level in two months.
Many analysts have said that silver will continue to outperform gold. The grey metal continues to benefit as a monetary policy as investors look for hedges against rising price pressures. At the same time, growing industrial demand as the global economy starts to open up will also support prices, analysts added.
Reference: Kitco
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