Hedge Funds Still Buying Gold, But Momentum Is Fading
(Kitco News)- For the fifth consecutive week,hedge funds continue to buy gold in a weak U.S. dollar environment.
However, while there issubstantial bullish sentiment within the gold market, analysts are warning thatmomentum could be fading as bearish positions start to build.
“There is underlying demand inthe gold market that is visible but the speed at which speculative longpositions have built up over the past weeks could be a bit of concern forinvestors,” said Ole Hansen, head of commodity strategy at Saxo Bank.
The Commodity Futures TradingCommission’s disaggregated Commitments of Traders report for the week endingJan. 16 showed money managers increasing their speculative gross long positionsin Comex gold futures by 11,258 contracts to 227,373. At the same time, shortbets rose by 5,776 contracts to 25,841. This is the first time in five weekshedge funds increased their gross short bets. Gold’s net length increased to201,532 contracts.
Gold’s net length increasedalmost 3% from the previous week. The continued buying pressure helped pushgold to its highest level since September, with prices rising 1.8% during thesurvey period.
Bill Baruch, president of BlueLine Futures, warned traders from chasing the gold market higher at currentlevels. In a note to clients Monday, he said that he is neutral on gold in thenear term, as his firm maintains its long-term bullish view.
He noted that technically goldprices are testing significant overhead resistance as the long position isstarting to look “crowded.”
For many technical analysts, thefirst significant support level to watch in the gold market comes in at $1,325an ounce; however, many analysts have said that the precious metal can maintainits uptrend as long as prices remain above $1,300.
Continuing the theme from 2017,silver underperformed the gold market as hedge funds reduced their overallexposure to the precious metal, ending four consecutive weeks of buying. Thedisaggregated report showed money-managed speculative gross long positions inComex silver futures fell 6,318 contracts to 59,906. At the same time, shortpositions fell by 1,650 contracts to 26,472. Silver’s net length now stands at33,434 contracts.
Silver’s net length declined 12%from the previous week. During the survey period, silver prices hovered aroundthe critical psychological level of $17 an ounce, rising 1%.
Despite lackluster speculative positioning,commodity analysts remain optimistic that silver will eventually outperformgold prices as demand, particularly from industrial sectors, picks up as theglobal economy sees further growth in 2018.
By Neils ChristensenFor Kitco News
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nchristensen@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.