Gold and silver are seeing a surge in momentum as hedge funds increase their bullish bets on the precious metals, with the Federal Reserve poised to begin a new easing cycle, according to the latest Commodity Futures Trading Commission (CFTC) data.
Gold speculative positions have hit a four-year high and continued climbing last week. The CFTC’s Commitments of Traders report for the week ending September 17 showed money managers boosting their gross long positions in Comex gold futures by 28,199 contracts, totaling 241,844. Short positions also grew by 2,299 contracts, reaching 25,489.
This bullish momentum has helped gold maintain strong support, with prices staying above $2,600 per ounce. Gold’s net length now stands at 216,355 contracts, marking a fresh four-year peak. Despite some analysts cautioning that gold’s speculative positioning may be overextended, the metal remains supported, buoyed by the Fed‘s recent 50-basis-point rate cut and its projection for long-term rates to drop to 3% by 2026.
“As the Federal Reserve shifts its focus toward maximum employment, investors see a more accommodative rate environment, reducing the opportunity cost of holding gold,” said analysts at TD Securities. They emphasized that with aggressive easing expectations and ongoing fiscal deficits, gold continues to be an attractive option for diversifying portfolios and protecting against low real yields.
TD Securities had previously held a tactical short position in gold, expecting a more cautious Fed approach. However, after the Fed’s significant rate cut, the bank closed its position with a 4.4% loss.
While some argue that gold’s positioning is stretched, others see more room for growth, particularly as gold-backed exchange-traded funds (ETFs) begin to attract inflows after a slow start to 2024. Last week, SPDR Gold Shares (NYSE: GLD), the world’s largest gold-backed ETF, added 12 tonnes, narrowing its year-to-date losses to just 3.72 tonnes.
“The renewed demand for ETFs is just beginning, and this will create a new wave of momentum across the market,” said Chris Mancini, Associate Portfolio Manager at The Gabelli Gold Fund (GOLDX).
Silver is also seeing bullish momentum as hedge funds rapidly increase their positions. CFTC data shows speculative gross long positions in Comex silver futures grew by 11,608 contracts to 51,074, while short positions fell by 2,190 contracts to 11,455. Silver’s net length now stands at 39,619 contracts, its highest in two months. Silver prices held support above $31 an ounce, despite significant volatility during the survey period.
Silver has benefitted from gold’s record-breaking run, but analysts caution that weak economic growth, which triggered the Fed’s easing cycle, could weigh on the metal. More than half of silver’s demand comes from industrial applications, which could be affected by economic slowdown.
Some experts suggest silver investors should monitor China’s central bank actions closely. Any measures to stimulate China’s sluggish economy could positively impact silver.
Arslan Ali, market analyst at FxEmpire, anticipates silver prices to surge to $31.75 as the People’s Bank of China injects liquidity into the economy and markets. “As liquidity flows increase, manufacturing activity could rise, boosting silver demand in industrial applications,” Ali said. He also pointed out that silver’s dual role as a safe-haven asset and an industrial commodity positions it for further price growth in 2024, especially amid a weaker dollar.
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