Hedge funds scrambling for gold as an inflation hedge
(Kitco News) -The growing inflationthreat has shifted sentiment in the gold market, with hedge funds significantlyincreasing their bullish precious metals bets to protect their wealth,according to analysts after reviewing the latest data from the CommodityFutures Trading Commission (CFTC).
The CFTC disaggregatedCommitments of Traders report for the week ending Nov. 9 showed money managersincreased their speculative gross long positions in Comex gold futures by31,189 contracts to 168,133. At the same time, short positions dropped by 9,182contracts to 41,523.
Gold's net length nowstands at 125,610 contracts, up more than 47% compared to the previous week.Gold's net length now stands at its highest level since early July 2020.
According to analysts atSoci?(C)t?(C) G?(C)n?(C)rale, gold saw its third-largest bullish inflows on record.
"The Fed seemsdetermined to keep rates low until labor market conditions improve. This choiceis now casting doubt upon the central bank's willingness to control inflation,described as "transitory" multiple times by Fed officials," theanalysts said.
During the survey period, gold prices pushed above$1,800 an ounce, reaching their highest level in more than two months.
"Speculators rushedinto gold futures as real yields dropped and the dollar softened ahead of lastWednesday's white-hot CPI print," said Ole Hansen, head of commoditystrategy at Saxo Bank.
Hansen noted that thelatest Commitment of Traders report came before October U.S. Consumer PriceIndex, which showed inflation rise to 6.2%, the highest level in more thanthree decades.
"The subsequentrally to the current level around $1870 has undoubtedly resulted in more lengthbeing added," he said.
Hansen added that whilethe gold market has significantly improved, more work needs to be done.
"The dollar stillstrengthening and yields showing signs of rising, the metal needs to breakhigher soon in order to avoid selling from recently established longs," hesaid.
Daniel Briesemann,precious metals analyst at Commerzbank, noted that the inflation threat ishelping the gold market rally in the face of a stronger U.S. dollar and risingbond yields.
"The picture on thegold market appears to have changed completely since the U.S. inflation datawere published last week - if not before. Ever since gold has been living up toits reputation as a store of value and is in demand accordingly," he said.
However, Briesemann alsohighlighted some caution in the gold market.
"The question now ishow lasting this upswing will prove and whether gold will come under pressurein the event of profit-taking," he said.
Some analysts have alsonoted that while bullish speculative bets have jumped higher in recent weeks,demand for gold-backed exchange-traded products has remained lackluster.
Bullish sentiment is alsopicking up in the silver market as money managers drop their bearish bets.
The disaggregated reportshowed that money-managed speculative gross long positions in Comex silverfutures increased by 559 contracts to 50,950. At the same time, short positionsfell by 2,720 contracts to 23,702.
Silver's net length standsat 27,248 contracts, up more than 13% compared to the previous week.
During the survey period,silver prices managed to hold support above $24 an ounce. Following the latest survey,silver's market has improved, with prices pushing above $25 an ounce, hitting athree-month high.
Commodity analysts remainbullish on silver in the long term. Many analysts have said global governmentinitiatives to build new green energy infrastructure will increase demand forthe precious metal.
While the bullishsentiment is building in the precious metals market, industrial metals likecopper are seeing new bearish bets among hedge funds. Some analysts have notedthat softer economic activity in China is weighing on demand for copper.
"The extremebackwardation in copper is subsiding as inventories trickle into exchangewarehouses," said commodity analysts at T.D. Securities. "Thisreflects a continued easing in metals supply risk as China's crackdown on coalreverberates across the industrial metals complex."
Copper's disaggregatedreport showed money-managed speculative gross long positions in Comexhigh-grade copper futures fell by 6,280 contracts to 60,874. At the same time,short positions rose 4,740 contracts to 36,954.
Copper's net length iscurrently at 23,920 contracts, falling 31.5% from the previous week. Copperprices saw were relatively stable during the survey week as prices remainedbelow $4.40 per pound.
By Neils ChristensenFor Kitco News
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