Gold and Silver Leave Hedge Funds Hanging

(Kitco News) – Solid support in gold and silver is frustrating some bearish hedge funds. Both precious metals saw some short-covering momentum last week, according to the latest trade data from the Commodity Futures Trading Commission.

The CFTC’s disaggregated Commitments of Traders report for the week ending Feb 20 showed money managers decreased their speculative gross long positions in Comex gold futures by 1,802 contracts to 98,840. At the same time, short positions fell by 17,549 contracts to 48,917 contracts.

The short covering improved gold’s bullish position from last week’s two-month low. The market is now net long 49,923 contracts. During the survey period, gold prices managed to test resistance at $2,050 an ounce but did not have enough momentum to break the resistance level.

Although silver saw a more significant short squeeze than gold, it still didn’t have enough momentum to break its bonds above $23.50 an ounce.

The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures rose by 3,248 contracts to 36,252.  At the same time, short positions fell by 10,660 contracts to 31,327.

The silver market has been net short since the start of the month and this short covering has pushed prices back into bullish territory. Silver is net long 4,925 contracts, its highest level since Jan. 15.

Gold and silver prices have been consolidating in a well-defined trading channel as investors continue to adjust to expectations around the Federal Reserve’s monetary policy.

“While the decline in long positions is consistent with the market pricing out of Fed cuts over the course of the year, macro traders have built a sizeable net short position, leaving them vulnerable. CTA trend followers contributed to buying activity over this time horizon, in line with the increase in net length,” said commodity analysts at TD Securities, in a note Friday. “Since then, however, prices have remained relatively unchanged as robust Chinese and OTC investment demand continues to provide an offset to bearish speculative flows. Looking forward, both algos and fundamental traders could be axed to buy the yellow metal, with macro traders now historically underinvested for a Fed cutting cycle.”

Analysts at TDS also see potential for a bigger short squeeze in silver.

“Extremely bloated non-commercial short positions in silver appear inconsistent with the fundamental outlook. At first glance, an adversarial macroeconomic context appears to be fueling a chunk of this short positioning, but CTA trend followers have also contributed with trend signals in the white metal less favorable than in gold markets. Looking forward, structural deficits will continue to sap metal from silver vaults, eventually leading participants to the question: how much metal is truly freely available for purchase? For the time being, however, the short covering activity recorded in this report is more likely related to the improvement in trend signals than it is to the strong fundamental outlook,” the analysts said in the note.

Looking ahead, while robust physical demand from Asia and unprecedented purchases from central banks will continue to support gold prices, many analysts have said that the precious metal will remain confined to its trading range until the Federal Reserve makes it clear that it will be cutting interest rates.

“Gold and silver are struggling to persuade investors that they’re worth owning in any significant quantity. But following its spike in early December, gold is consolidating above $2,000 quite comfortably. Silver, as ever, is far more erratic. But precious metals can spend years doing nothing and then a strong rally appears out of nowhere. Could we see this happen in 2024? Quite possibly,” said David Morrison, Senior Market Analyst at Trade Nation, in a recent comment to Kitco News.

This article originally appeared on Kitco News