Hedge funds are increasingly turning their attention to gold and silver, with speculative positioning reaching a notable benchmark last week, according to the Commodity Futures Trading Commission (CFTC).
Gold saw its net bullish positioning surpass 200,000 contracts for the first time in four years, despite a lack of substantial increase in bullish bets. This milestone coincided with gold prices holding steady near record highs above $2,500 per ounce. The rise in bullish positioning was primarily driven by short covering, as hedge funds reduced their short positions.
The CFTC’s disaggregated Commitments of Traders report for the week ending August 27 revealed a reduction in speculative gross long positions in Comex gold futures by 4,166 contracts, bringing the total to 217,976. Concurrently, short positions fell by 11,152 contracts to 17,685. The net positioning in gold now stands at 200,291 contracts, with gold prices consolidating above $2,550 per ounce during the reporting period.
Ole Hansen, head of Commodity Strategy at Saxo Bank, observed that the gold market had a relatively subdued week. “Despite near-record price levels, gold did not see significant profit-taking from funds holding elevated net long positions,” Hansen noted.
Analysts caution that the elevated positioning in gold presents short-term risks, although momentum indicators are not yet showing signs of being overbought. The gold market is nearing its 2019 record high by less than 38,000 contracts.
TD Securities analysts highlighted that while Western money managers could continue to build their long positions, the market is nearing its limits. “Our advanced positioning analytics suggest that, given the current leverage, the market is effectively maxed out,” they stated. They also warned that gold prices could potentially fall back to $2,400 per ounce in the near term.
In contrast, other analysts maintain a relatively positive outlook. Matt Simpson, market analyst at City Index, pointed out that net-long exposure is approaching record levels when adjusted for total open interest. “However, this is partly due to historically low total open interest, indicating that many investors remain hesitant about the gold rally, which could be seen as bullish overall,” Simpson said.
Silver is also attracting increasing bullish interest. The CFTC report indicated that money-managed speculative gross long positions in Comex silver futures rose by 3,399 contracts to 42,916. Short positions increased slightly by 51 contracts to 9,729. During the reporting period, silver prices surpassed $30 per ounce but have struggled to maintain these gains, testing support around $28 per ounce.
While bullish sentiment in silver remains strong due to robust industrial demand, some analysts express concern that a slowing economy could impact this demand, potentially putting downward pressure on prices.
