Hedge funds are showing renewed interest in the gold market, anticipating that the Federal Reserve’s rate hike in July will be the last in its aggressive tightening cycle. According to the CFTC’s Commitments of Traders report, money managers have increased their speculative gross long positions in Comex gold futures significantly while reducing short positions. As a result, the gold market is now net long by 115,318 contracts, the highest level since early March 2022, with gold prices reaching a seven-week high around $1,980 per ounce during the survey period.
This rally in gold prices was triggered by weaker-than-expected June consumer inflation data, leading some market participants to speculate that the Federal Reserve might end its aggressive tightening cycle. However, gold has faced challenges in maintaining last week’s gains and is currently testing support above $1,950 an ounce. Persistent core inflation and a strong labor market supporting higher wages could lead the U.S. central bank to maintain its aggressive stance for a longer period than expected.
Analysts at TD Securities believe that despite headline inflation dropping to 3%, the Fed will likely continue its hawkish rhetoric after implementing another 25 bps rate hike. They anticipate gold trading near key support levels as we approach the Fed decision day.
While some economists believe that gold will regain its appeal once the Federal Reserve signals it is done raising interest rates, others suggest that the central bank is nearing its end game, which is why some hedge funds are testing the gold investment waters again.
Steven Land, lead portfolio manager of Franklin Templeton’s Franklin Gold and Precious Metals Fund, emphasizes that gold’s positioning in the market has been lackluster, but investor demand could pick up as economic activity weakens due to the impact of the Federal Reserve’s interest rate hikes. He expects gold prices to potentially reach record highs as a result.
Despite gold’s bullish sentiment, silver has outperformed gold lately. Money-managed speculative gross long positions in Comex silver futures rose significantly, with short positions declining, leading to silver’s highest net length since mid-April. Silver’s bullish sentiment rose at its fastest pace in over five years. This surge in silver prices has been driven by the resilience of U.S. economic activity and the potential for robust demand in the green energy transition, particularly for solar power.
While short-term volatility may affect silver prices, most analysts remain optimistic about silver’s long-term prospects, given its industrial demand in the green energy sector. The ongoing green energy transition is expected to drive industrial demand for silver, making it an attractive investment option for the future.
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