After a steady three-month decline, the latest trade data from the Commodity Futures Trading Commission (CFTC) shows that hedge funds are starting to jump back into gold as the market takes a run at long-term resistance at $1,800 an ounce, according to some analysts.
The CFTC's disaggregated Commitments of Traders report for the week ending June 23 showed money managers increasing their speculative gross long positions in Comex gold futures by 25,648 contracts to 161,593. At the same time, short bets rose by only 821 contracts to 32,078. Gold's net-long positioning currently stands at 129,515 contracts, up nearly 24% compared to the previous week.
“This is equivalent to buying 119 tons via the futures market during this period,” said analysts at Commerzbank.
During the survey period, gold prices rallied to their highest level in nearly 3 years; although the market hasn’t been able to breach $1,800 an ounce. Gold appears to be finding solid support above $1,750 an ounce.
“The increase in long positions was also driven by a weakening USD and a slide in real yields, as inflation expectation increases outpaced a rise in yields across the curve, driving real rates lower,” analyst at TD Securities said.
According to the analysts at Commerzbank, gold ’s safe-haven appeal is once again back in fashion as the U.S. and the world continue to deal with the unabated spread of the coronavirus. Economists have noted that some states plan to halt their reopening, which could impact economic growth just as optimism for a sharp recovery was starting to grow.
Commerzbank said that in the current environment it is only a matter of time before gold ’s significant resistance level breaks.
“There is much to suggest that gold will continue on its upward trajectory this week. Risk aversion has returned,” the analysts said.
Ole Hansen, head of commodity strategy at Saxo Bank, noted that in the last few months hedge funds had cut their bullish gold bets by 50%. He added that this renewed speculative interest in the yellow metal could be a signal that the market is ready to break out.
While hedge funds are jumping back into the gold market, they are still hesitant to invest in silver, according to the latest trade data.
The disaggregated report showed money-managed speculative gross long positions in Comex silver futures rose by 3,838 contracts to 37,565. At the same time, short positions increased by 2,333 contracts to 16,099.
Silver's net length currently stands at 28,743 contracts, up 5.5% from the previous week.
During the survey period, silver prices pushed above $18 an ounce.
Hansen said that silver could continue to see lackluster demand until gold prices break above $1,800 an ounce.