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Gold's ability to hold around $1,800 an ounce is finally starting to attract new bullish speculative interest as hedge funds increase their long positions in the precious metal and further cut their short bets.
Investors are testing the precious metals markets, some analysts say, as falling inflation fueled expectations that the Federal Reserve will start slowing rate hikes as the tightening cycle nears its end.
Commodity analysts at Societe Generale said the precious metals market gained $3.6 billion last week after weaker-than-expected inflation data for November.
"Although lower inflation would typically be bearish for gold, the bullion has been supported recently by the prospect of the Fed slowing interest rate increases. Because gold is a non-interest generating asset, a lower peak interest rate is bullish for the bullion," analysts said in a note.
In the CFTC's disaggregated Commitment of Traders report for the week, financial managers on the Comex increased their speculative long positions in gold futures by 10,108 contracts to 103,737. At the same time, short positions fell by 3,854 contracts to 66,288.
The gold market now has a net long position of 37,449 contracts, reaching its highest level since late August.
"After weeks of short covering, money managers have started to build long exposure in the gold market once again. With inflation data coming in below expectations, market participants anticipated the upcoming FOMC meeting would tilt firmly toward the dovish side," TD Securities analysts said.
However, TDS expects the ongoing tightening of the Federal Reserve in the first quarter of 2023 to put pressure on gold prices.
John Reade, chief market strategist at the World Gold Council, said in a comment on Twitter that gold has room to grow.
"The increase in the net long gold futures position was driven by 45 tons of new longs and 14 tons of short covering."
"Gross long posiitons remain pretty subdued, while gross shorts remain a bit on the high side," he said. Along with gold, investors are also bullish on silver as hedge funds have increased their long positions on the gray metal and significantly cut their short bets.
Eric Strand, portfolio manager and creator of the European-listed AuAG ESG Gold Mining exchange-traded fund (LSE: ESGO), said gold will skyrocket in 2023, but investors should look to the miners.
The disaggregated report showed that on the Comex, speculative long positions in silver futures rose 3,456 contracts to 37,885. At the same time, short positions decreased 10,274 contracts to 32,248.
The net length of silver is now 19,698 contracts. Bullish positioning is at its highest level since late May.
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