A hawkish trend to the Fed’s recent monetary policy decision, supported by comments from US Federal Reserve Chairman Jerome Powell, is encouraging hedge funds to increase their short bets on gold and abandon their bullish forecasts, according to the latest data from the Commodity Futures Trading Commission (CFTC).
“Golden net position has fallen rapidly in about three years”
The CFTC’s Commitments of Traders report for the week ended Feb. 1 shows money managers slashing their speculative gross long positions in Comex gold futures by 32,331 contracts to 108,309. At the same time, short positions increased by 19,130 contracts to 58,395.
Gold’s net position currently stands at 49,914 contracts, down nearly 51% during the survey period. While gold is pegged around $1,800, the rise in downside speculative positions briefly pushed prices to a one-month low of $1,780.60, during the survey period. Gold’s net position fell to its lowest level since September. City Index market analyst Matt Simpson states that the net position of gold has fallen rapidly in about three years.
Money managers increased the bearish bias towards gold after the Federal Reserve laid the groundwork for a rate hike in March. The US central bank also laid the groundwork for shrinking its balance sheet before the end of the year. Kitco analysts make the following assessment:
Since the FOMC meeting, markets have priced in the possibility of five rate hikes this year, with a potential increase of 50 basis points in March. Since the January monetary policy meeting, positive economic data, including strong January employment numbers, further solidified expectations.
Daniel Briesemann: Gold’s performance will decline until March
Commerzbank precious metals analyst Daniel Briesemann says gold prices have risks he can tackle in the near term, ahead of the next Federal Reserve monetary policy meeting in March. The analyst explains the effect of expectations on gold prices as follows:
We will see how long gold can last in the current market environment characterized by rising interest rate hike expectations. It also turns out that gold is struggling to make any noticeable gains in the current market environment. We expect the performance of the gold price to decline until the first interest rate hike by the Fed, which we believe will take place in March.
Similar to gold, the silver market has also seen a sharp drop in upside speculative interest. The distributed report shows that money-administered speculative gross long positions in Comex silver futures fell by 5,521 contracts to 46,101. At the same time, short positions fell by 9,939 contracts to 34,142.
Silver’s net position stands at 11,959 contracts, down more than 56% from the previous week. An increase in the bear position pushed the price of silver from $24 to $22.00 during the survey period. While silver remains stuck in a fairly wide channel, analysts remain bullish on the precious metal as industrial demand remains firm.