As expected, hedge funds significantly reduced their short-term gold bets. However, they are reluctant to take any major bull positions, according to the latest data from the Commodity Futures Trading Commission (CFTC).
“Short squeeze for gold will eventually fail”
cryptocoin.com As you follow, gold saw an impressive short-term rally last week. In this rally, gold prices hit a one-month high. However, the market has consistently failed to gain above $1,700. Analysts say the speculative bear position at several-year highs will keep the bottom volatile and susceptible to short squeeze. However, gold will struggle to sustain any bullish momentum as the Fed continues to aggressively raise interest rates. Commodity analysts at TD Securities comment:
The rising persistence of inflation suggests the Fed is unlikely to preemptively halt the march. This suggests that the short squeeze will ultimately fail as technical resistance remains while interest rates and the broad dollar rally continue. In the prolonged period of restrictive rates, traders need to ignore the siren calls of gold. Because it suggests a sustained bearish trend will prevail and QT will continue to push real rates higher.
“Gold is likely to stay on the defensive”
The market sees an 85% chance for the Fed to raise the Fed Funds Rate another 75 bps in November, according to the CME FedWatch Tool. Commerzbank commodity analysts say real interest rates are on track to rise to 1.7%, their highest level since August 2009. Analysts comment:
This makes gold less attractive as an interest-free investment. As long as the headwind and rising real returns from the US dollar continue, gold is likely to remain on the defensive.
“Last week, 4.7 billion dollars of funds flowed into the gold market”
For the week ended Oct. 4, the CFTC’s disaggregated Commitments of Traders report showed that money managers increased their speculative gross long positions in Comex gold futures to 8,635 contracts, to 82,806. At the same time, short positions fell by 27,584 contracts to 89,681.
Net shorting of gold is currently down 84% from the previous week. As a result, it stands at -6,875 contracts. Gold’s bearish position is at its lowest level since early August. During the survey period, gold rose to $1,738.70.
It also jumped 7% from the multi-year low the previous week. Commodities analysts at Société Générale say $4.7 billion in funds poured into the gold market last week. It also notes that it’s the third-largest move since the CFTC began its updated survey in 2006.
“Yellow metal did more than it should”
Gold continues to struggle amid strong bullish momentum in the US dollar and rising bond yields. Nicky Shiels, head of metal strategy at MKS PAMP, says there is some strength in the market. He notes that based on the data, gold has extended its move by around $50. Shiels continues his assessment as follows:
Gold did more than it should due to some additional unknown purchases and known flows indicating a lack of vendors. Bullion is usually attractive when it’s super clean as is the positioning. However, this assumes that ETFs are idle HODLs. COT shorts are clean unless a gold-specific catalyst turns up. Also, it’s possible for ETFs to come into play again as higher real interest rates continue to flow into the US dollar.
“Probably the gold market will continue to struggle until the end of the year”
The US economy continues to lose momentum and the threat of recession continues to grow. However, according to a precious metals firm, the Fed will continue to tighten its monetary policies. So this will keep bullion prices low for a longer period of time. Commodities analysts at Heraeus Precious Metals warn investors in their latest precious metals reports that the gold market will likely continue to be strained through the end of the year as rising interest rates support the US dollar.
There’s something that helps pull the bottom down. That is, the market continues to push any possible change in US monetary policy. Markets do not foresee that the Fed will return from the path of rate hikes by the end of 2023. Analysts underline the following points in the report:
The Fed is far behind the curve in tackling inflation, which is still well above the 2% target rate. In addition, the supply-side element of the current inflation crisis cannot be resolved with interest rate hikes. This means that demand-side inflation must be more tightly suppressed. The Fed needs to be willing to endure a significant contraction in manufacturing if it wants to bring inflation down to target levels. He last had to do this in the early 1980s.
Heraeus says the Fed’s monetary policy axis remains the critical factor for the eventual recovery of gold. Analysts make the following statement:
Markets are hoping the dollar will start to depreciate when a slowing US economy pushes a Fed policy axis. As a result, he expects the gold price to increase. The longer the Fed stays on its current path, the longer a strong dollar will push the gold price down.
