(Kitco News) – Hedge funds increased their bearish bets in the gold market as the price has been unable to break above $1,800 an ounce, frustrating many investors as a result.
Analysts have noted that interest in gold has suffered since the start of the year as investors see significant momentum in other commodities. In particular, speculative momentum in copper and palladium have pushed prices to new all-time highs above $4.50 a pound and $3,000 an ounce, respectively.
Many analysts have said that while gold remains an attractive asset long-term hedge against rising inflation, speculative capital will flow to where the momentum is.
“Gold is seeing a lot of competition, but now is not the time to throw in the towel for gold,” said Bob Haberkorn, senior commodities broker with RJO Futures, in a recent interview with Kitco News. “Gold is struggling now, but at some point, it will have its day in the sun.”
CFTC disaggregated Commitments of Traders report for the week ending April 27 showed money managers increased their speculative gross long positions in Comex gold futures by only 301 contracts to 117,144. At the same time, short positions rose by 6,074 contracts to 66,493.
Gold’s net length currently stands at 50,651, down 10% from the previous week. During the survey period, gold prices retested resistance just below $1,800 before it was hit with selling pressure.
Despite the growing disappointment in the gold market, many analysts say that a break of $1,800 is inevitable as inflation pressure continues to rise, keeping real interest rates at historically low levels.
“While institutional outflows continue to weigh on the yellow metal, as nominal rates increasingly discount the singular reflation trade’s impact, the Fed’s commitment to ‘Average Inflation Targeting’ could argue for a period of time in which policy remains zero-bound but inflation overshoots. This argues for a more supportive context for the investment flows on the horizon,” said analysts at TD Securities.
While hedge funds are unsatisfied with the price action in the gold market, they are increasing their bullish bets in silver.
The disaggregated report showed money-managed speculative gross long positions in Comex silver futures rose by 2,790 contracts to 64,769. At the same time, short positions increased by only 221 contracts to 28,213.
Silver’s net length currently stands at 36,556 contracts, up 7.5% from the previous week. Silver’s net length is currently at its highest level since late February.
During the survey period, silver prices managed to hold critical support above $26. Silver continues to outperform gold as the gold-silver ratio hold near a one-month low, last trading at 66.68 points.
Ole Hansen, head of commodity strategy at Saxo bank, said that silver prices are surging as improving global economic conditions continue to support the precious metals industrial demand.
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