(Kitco News) – Sentiment is changing quickly in gold and silver as hedge funds continue to increase their bearish bets ahead of the Federal Reserve’s monetary policy decision last week, according to data from the Commodity Futures Trading Commission.
While the latest Commitment of Traders reports show a slight increase in bearish sentiment in gold and silver, some analysts note the data is bearish as prices have rebounded, trading at a three-week high.
Analysts note that gold is seeing a relief rally as investors and traders expected the Federal Reserve to be much more hawkish last week. Analysts said that although the US central bank is maintaining its aggressive tightening stance, there has been little change in its stance.
Federal Reserve Chairman Jerome Powell said the central bank would be wise to slow the pace of rate hikes as the economy begins to react to its aggressive monetary policy.
“Following the behemoth liquidations seen recently, and with Fedspeak seeing the market pull away from a 100bp price hike, the long position in the yellow metal quickly rebounded after prices breached the $1700/oz level. Additionally, with the Fed to raise rates by 75 bp, and Chairman Powell noting that the Fed could slow its rate of hikes at future meetings, gold bugs have received further respite as the resulting short covering sent prices soaring to end of the week,” commodities analysts at TD Securities said.
The distributed CFTC Commitments of Traders report for the week ended July 19 showed that money managers increased speculative gross long positions in Comex gold futures by 1,160 contracts to 92,216. At the same time, short positions increased at a faster pace, by 1,515 contracts to 111,309.
The net short position in gold increased by 19,093 contracts. During the survey period, gold prices briefly fell below $1,700, hitting a one-year low. The gold market has seen its bearish position grow over the past five weeks. However, analysts noted that gold looked overbought and ripe for a short squeeze.
TD Securities said that while prices have room to move higher, they have taken a tactical short position in gold as the market appears overbought following the Fed’s recovery.
“We remain tactically short gold, anticipating that a repricing in Fed expectations will exacerbate ongoing outflows of the yellow metal, leading to lower prices,” the analysts said.
In a recent interview with Kitco News, Phillip Streible, chief market strategist at Blue Line Futures, said he would consider taking profits as gold prices edged closer to $1,800 an ounce.
Streible added that markets could be a little too early to expect a U.S. central bank turnaround. He noted that the latest inflation data showed that consumer prices remained high, which could force the Fed to maintain its hawkish stance longer than expected.
Along with gold, hedge funds remain aggressively bearish on silver. The disaggregated report showed money-managed speculative gross long positions in Comex silver futures rose by 310 contracts to 36,721. At the same time, short positions increased by 4,087 contracts to 54,539.
Silver’s position is a net decline of 17,818, up 26% from last week. During the survey period, silver prices maintained support at $18 an ounce.
Similar to gold, silver has made a steady recovery following last week’s interest rate hike. Although the gold/silver ratio has fallen from a two-year high, it remains elevated around 87 points.
Although silver prices are currently trading firmly above $20 an ounce, some analysts worry that the rally is unsustainable as the risk of a recession rises.
A recession would lead to lower industrial use of silver, which accounts for more than 50% of demand for the precious metal.
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