Gold, silver and copper are ripe for short coverage – analysts
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(Kitco News) – Hedge funds continue to add to their bearish bets on gold. Still, analysts say the decline may be limited and the market is becoming an attractive contrarian move.
The CFTC’s disaggregated report on traders’ commitments for the week ending July 19 showed fund managers reduced their speculative gross long positions in Comex gold futures from 613 contracts to 91,056. At the same time, short positions increased from 11,992 contracts to 109,794.
The net short position in gold increased to 18,738 contracts. During the survey period, gold prices tested support at around $1,700 per ounce. Bearish positioning is at its highest level since May 2019.
Analysts noted that the gold market was in a strong downtrend as the Federal Reserve aggressively raised interest rates to slow the economy and calm rising inflationary pressures. The central bank is looking to raise interest rates another 75 basis points on Wednesday. The markets see interest rates rising between 3.50 and 3.75% by the end of the year.
However, many analysts also said that these rate hikes were priced into the market, limiting gold’s decline for the rest of the year. Some analysts have also noted that a slowing economy and potential recession could cause the Fed to slow the pace of rate hikes.
“Any sign that the Federal Reserve is giving in to rate hikes will be good for gold,” said John Hathaway, senior portfolio manager at Sprott Hathaway Special Situations Strategy. “I take these numbers as a signal about sentiment and people being discouraged, discouraged. It’s from these low points in terms of psychology that you get these dramatic rallies.”
Commodity analysts Societe Generale said the gold market had seen a bearish positioning of $21 billion since June 21. They also noted that the market was “extremely vulnerable” to short coverage.
Analysts note that the last time gold’s net positioning was this bearish, the market quickly reversed and began a multi-month rally that pushed prices to record highs above $2,000. the ounce.
“[Sentiment] does not guarantee anything, but with this kind of historical reference, gold is certainly not at the top. Even for an agnostic trader, you would want to be careful about that stuff,” Hathaway said.
But it’s not just gold. SocGen analysts also see silver as “extremely vulnerable” to short coverage.
The disaggregated report showed silver-managed speculative gross long positions in Comex silver futures fell 684 contracts to 36,411. Meanwhile, short positions rose 2,909 contracts. at 50,452.
Silver positioning is net short 14,041. Silver prices held support at $18 per ounce during the survey period.
The silver market continues to struggle as industrial demand remains weak. Analysts note that 60% of silver demand comes from industrial uses.
However, some analysts note that sentiment on industrial metals, as seen in the copper market, could be close to a bottom.
Copper’s disaggregated report showed silver-managed speculative gross long positions in high-quality Comex copper futures fell by 1,099 contracts to 38,869. decreased from 4,904 contracts to 53,405.
This is the second consecutive increase in bullish positioning, with net short bets totaling 14,536 contracts. During the survey period, copper prices bounced off support below $3.20 per pound.
“The (local) peak in commodity outflows is behind us. Capital is returning to large commodity funds, for the first time in more than a month. This marks the end of the largest outflows from this cohort since 2014, after a month of carnage in the commodities sector, saw outflows exceed those seen during the Covid-19 panic,” said commodities analysts at TD Securities. “Ultimately, base metals are still in a bear market regime, but the setup is still ripe for a short cover rally to ensue.”
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