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(Kitco News) – The upcoming Federal Reserve rate hike, which has pushed the U.S. dollar to a near 20-year high, is prompting gold investors to scale back their bullish stance, according to the latest trading data from the Commodity Futures Trading Commission.
Analysts have noted that the Federal Reserve’s plan to aggressively tighten monetary policy to counter the growing threat of inflation poses a significant headwind for gold. Not only is the US dollar hitting long-term resistance levels, but bond yields are within striking distance of 3%, their highest level since 2018.
However, many analysts have also noted that gold has historically hit a long-term low ahead of a new wandering cycle.
Ole Hansen, head of commodity strategy at Saxo Bank, described current gold price developments as a “dangerous market”.
“Gold investors just need to get through Wednesday’s FOMC meeting to find some fresh momentum,” he said.
The CFTC’s disaggregated Commitments of Traders report for the week ended April 26 showed that money managers reduced their gross speculative long position in Comex gold futures by 19,345 contracts to 138,215. At the same time, short positions increased by just 804 contracts to 57,098.
Gold’s net length now stands at 81,117 contracts, down almost 20% from the previous week. Gold’s net length is currently at a three-month low. During the survey period, gold prices tested the support at $1,900 an ounce.
Since then, gold has continued to struggle as the market fell almost 3% on Monday. Although gold is struggling to attract bullish momentum, some analysts are noting that the market is still relatively healthy as money managers hesitate to take significant bearish bets.
Phillip Streible, chief market strategist at Blue Line Futures, said he views the sell-off in gold as the last capitulation move ahead of the Federal Reserve policy meeting.
However, other analysts see further weakness for gold.
“Given that high food and energy prices will persist for a significant period of time and inflation is entrenched in the economy, it is highly likely that the Federal Reserve will continue to issue very hawkish policy signals for a while. This means that any rally, like that of the past few days, can have a finite lifespan and long liquidations well into the second half of the year can be a fact,” said analysts at TD Securities.
Investors aren’t just exiting the futures market. Daniel Briesemann, precious metals analyst at Commerzbank, noted that global gold-backed exchange-traded funds have seen outflows over the past week, ending a 14-week winning streak.
“The withdrawal of both groups of investors has likely weighed on gold prices and accordingly contributed to lower prices,” he said in a statement on Monday.
Along with gold, silver is also struggling as hedge funds react to the upcoming Federal Reserve rate hike.
The disaggregated report showed that money-managed gross speculative long positions in Comex silver futures fell by 12,614 contracts to 44,689. At the same time, short positions decreased by 1,706 contracts to 18,291.
Silver’s net length stands at 26,398 contracts, down 34% from the previous week. Silver prices were under continued selling pressure during the survey period as prices fell below $24 an ounce. The market continued to lose ground as prices fell below $23 an ounce.
Silver is struggling not only as a currency metal, but also in industrial demand. The growing threat of a global economic slowdown is weighing on base metals. According to last week’s report, hedge funds have significantly reduced their exposure to copper. Analysts have said China’s economy is slowing due to its COVID-19 lockdowns.
“While infrastructure-focused stimulus provides strong tailwinds for commodity demand going forward, traders’ attention remains on the interim spate of metal shipments into LME warehouses, which continues to weigh on prices,” said commodity analysts at TD Securities.
Copper’s disaggregated report showed that money-managed gross speculative long positions in high-grade Comex copper futures declined 11,101 contracts to 58,010. At the same time, short positions increased by 11,411 contracts to 56,433.
Copper’s net length fell to 1,577 contracts, down 93% from the previous week. During the survey period, copper prices tested fresh support at $4.40 a pound.
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