Expectations are that July will be the last rate hike in the Federal Reserve’s most aggressive tightening cycle. This is an encouraging factor for hedge funds to return to the gold market. Along these lines, some began to second-guess the newfound optimism.
A Gold trades close to key support levels will
The CFTC’s disaggregated Commitments of Traders report for the week ended July 18 showed that money managers increased their speculative gross long positions on Comex gold futures by 23,250 contracts to 147,644. At the same time, shorts fell by 9,625 contracts to 32,326. The gold market currently has a net long position of 115,318 contracts. Moreover, the increase in speculative positions reached the highest level seen since the beginning of March 2022. Gold prices rose to the highest level in seven weeks during the survey period. On this move, it tested the resistance near $1,980.
The rally followed the weaker-than-expected June consumer inflation data. cryptocoin.com As you follow in , some market participants are suggesting that there is now room to end the Fed’s aggressive tightening cycle, in response to inflation figures. However, gold failed to hold onto last week’s gains as it tested support above $1,950. It is possible that stubborn core inflation and a strong labor market supporting higher wages will force the Fed to maintain its aggressive stance longer than expected. The report highlights the following:
With headline inflation falling to 3%, many investors believed the U.S. central bank’s hawkish rhetoric was less likely to match real rate hikes. But with prices falling from CPI-inspired highs after stronger-than-expected jobless claims data and interest rates and the USD trending higher again, positioning is likely to turn short as the Fed decision day approaches…Fed officials will continue to speak hawkish. This is unlikely to be positive for gold. Presumably, gold will trade close to key support levels.
It makes sense to buy gold on the drop, but…
Sean Lusk, commercial hedge co-director at Walsh Trading, says he’s considering buying gold on any dips. But he states that trying to get ahead of the Fed won’t make any money.
Economists and analysts say that gold will shine again only when the Fed makes it clear that it has finished raising interest rates. However, some economists note that even without the last rate hike in July, the central bank has entered its final game and is approaching final rates. That’s why some hedge funds are starting to retest gold investment water, they say.
In this case, it is possible for gold to return to record levels!
Steven Land, chief portfolio manager of Franklin Templeton’s Franklin Gold and Precious Metals Fund, says the lackluster positioning of gold shows its potential in the market. Land notes that while the uptrend has reached its highest level in almost 1.5 years, speculative positioning is still below the levels seen when gold prices hit record highs in 2020.
He adds that investor demand will increase as economic activity, choked by the Federal Reserve’s hike in interest rates, begins to weaken. In this context, “We did not really see investment demand in the market. “But when that picks up, it is possible for prices to easily return to record highs.”
Yellow metal cannot pour water into silver’s hands!
No matter how bullish investors have been on gold last week, gold can’t beat silver. Until last week’s survey, silver prices were up about 8%. Silver prices continued to rise during the survey period. In the process, it reached the highest level of the last nine weeks at $ 25,475. However, there was a significant amount of profit taking in the market. Thus, prices found support around $24.50.
Meanwhile, US economic activity has not remained more resilient than anticipated. For this reason, some analysts state that silver outperforms gold. However, other analysts question whether this pace will continue if the US goes into recession. Despite some short-term fluctuations, the green transition and strong demand for solar power continue to drive industrial demand for the precious metal. Hence, most analysts remain extremely bullish in silver over the long term.
