26.07.202212:33 Forex Analysis & Reviews: Gold is ripe, but the market is vulnerable to covering short positions

Hedge funds continue to increase their bearish bets on gold. However, according to many analysts: the decline may be limited and the market becomes attractive with the opposite movement.

In the CFTC disaggregated Commitments of Traders report for the week, money managers reduced their speculative long positions on the Comex in gold futures by 613 contracts to 91,056. At the same time, short positions rose by 11,992 contracts to 109,794.

Net short gold position increased up to 18,738 contracts. Bearish positioning is at its highest level since May 2019.

The gold market is in a sustained downward trend as the Federal Reserve raised interest rates aggressively to slow the economy and ease mounting inflationary pressures.

The central bank is looking to raise interest rates by another 75 basis points on Wednesday. The forecast says the potential increase in interest rates by the end of the year should be up to 3.50–3.75%.

However, these rate hikes have already been priced in by the market, so gold's decline through the end of the year will be limited. And a slowdown in the economy and a potential recession could lead to the fact that the Fed will slow down the pace of rate hikes.

Commodity analysts at Societe Generale said the gold market has been $21 billion bearish since June 21. They also noted that the market is very vulnerable to covering short positions. They stressed that the last time gold's net positioning was so bearish, the market quickly reversed and moved into a monthly rally that pushed prices to record highs above $2,000 an ounce.