The volatility surrounding the Federal Reserve’s monetary policy has hedge funds caught on the wrong foot. Because the gold price slipped below critical resistance levels. Analysts share their views on the route the yellow metal will follow from now on.
Long positions increased, but the gold price could not break the critical resistance!
The latest trading data from the Commodity Futures Trading Commission showed a solid increase in long positions. It also marked a sharp reduction in bearish betting. Thus, the gold price rose to its highest level in three weeks last week. Some analysts say that disappointing economic data and signs that the labor market is starting to cool are attracting some buyers, while gold is starting to see oversold price levels all the while. They also state that conditions are present for a ‘short squeeze’.
The CFTC’s disaggregated Trader Commitments report for the week ended Aug. 29 showed that money managers increased their speculative gross long positions on Comex gold futures by 15,524 contracts to 120,609. At the same time, short positions decreased by 14,609 contracts to 81,367. The gold market currently has a net long position of 39,242 contracts. During the survey period, December futures gold contracts reached the highest level at $1,966.50. The bullish momentum pushed the gold price up to $1,980. However, this was not enough to break the long-term resistance level.
Carsten Fritsch: The gold price will remain limited for now!
Commodity analysts at Société Générale say the precious metals sector was the most active sector last week. It also notes that it has seen $8.2 billion in bullish inflows. At the same time, he underlines that gold leads the sector with an inflow of 5.2 billion dollars. Carsten Fritsch, precious metals analyst at Commerzbank, notes in a research note that the bullish position in the gold market has quadrupled compared to the previous week.
However, he adds that investors should not expect to see a sustained rally in gold in the near term, as US economic data has not weakened decisively enough for the Fed to stop tightening monetary policy. In his note, Fritsch underlines the following points:
It is too early to declare this as the beginning of a trend reversal. This was evident from the reaction of the gold price to US labor market data on Friday. The spot gold price briefly climbed to $1,950. Because the report pointed out that the situation in the labor market had become even looser. However, after a short time, this rise was reversed again as Fed interest rate expectations were not reassessed. This is unlikely to change until the Fed meets in two weeks. This means that spot gold will remain limited to $1,950 for now.
Fred Hickey: There’s potential underneath
Stubborn inflation puts pressure on the Fed to maintain its tightening stance. For this reason, the gold market is having a hard time keeping its feet on the ground. However, some analysts still see potential for the gold price as the bearish position remains high. Fred Hickey, creator of The High-Tech Strategist investment newsletter, comments in a social media post:
Shorts are still very high (81.4K) and net longs are very low at 39K. Heavy upward buying pressure continues.
Given that gold started the latest COT report period slightly below $1,900 &ended the 5-day period $40+ higher, the 30K Managed Money increase was to be expected. Shorts still very high(81.4K) &the net long futures contracts very low at 39K. Heavy upward buying pressure remains.
— fred hickey (@htsfhickey) September 1, 2023
Gold possible to slide to $1,900 before rally
The long-term outlook for gold remains strong, according to Sean Lusk, co-director of commercial hedging at Walsh Trading. However, seasonal factors and a strengthening in stocks and the US dollar mean the precious metal could retest $1,900 before rising higher. In this context, Lusk makes the following assessment:
Higher stocks and higher dollar will simply mean lower gold price. In my view this recent rebound in gold was due to the stock market being a bit over their heels. So if we continue in this environment, you are more likely to pull back in metals here. I’ve been on the rise in the long run. However, that doesn’t mean we can’t retest $1,900 on the downside.
Sean Lusk: The jury is still out on the gold price!
From a technical standpoint, Lusk says gold has bounced back from some support levels last week. However, he says the jury is still undecided on whether there will be an ongoing rally this week. From this point of view, he draws attention to the following levels:
I’m not sure how this signals a potential rally and how to break above $2,000. I think the market is telling us that it went as high as $1,980, anywhere near there will again face some psychological resistance. But technically it doesn’t really matter. A 10% annual increase in gold is just over $2,000, at $2,008. So I think we can do that. And if we keep going, we can make a run for $2,050, $2,100.
