(Kitco News) – Volatility surrounding U.S. interest rates is taking its toll on gold prices as hedge funds liquidated their bullish bets but remain hesitant to make any significant bearish bets, according to the latest trade data from the Commodity Futures Trading Commission.
Although gold prices have managed to hold solid support above $2,000 an ounce, some analysts note that shifting momentum in the marketplace could weigh on prices in the near term.
In an interview with Kitco News, Craig Erlam, senior market analyst at OANDA, said that he sees the price action in the precious metal as a “tossup” as the market lacks a catalyst to drive prices higher.
The CFTC’s disaggregated Commitments of Traders report for the week ending Jan. 6 showed money managers decreased their speculative gross long positions in Comex gold futures by 20,051 contracts to 134,333. At the same time, short positions increased by only 639 contracts to 45,874.
The latest selling pressure has pushed gold’s net length to a two-month low. The precious metal is net long by 88,459 contracts. However, the market has been reasonably stable as prices have traded in a range between $2,000 and $2,050 an ounce.
Some analysts note that gold is consolidating as the market has no clear guidance regarding the Federal Reserve’s monetary policy. Markets see a more than 70% chance of a rate cut in March; however, some central bankers have pushed back on that timing, even as they prepare for eventual easing.
Commodity analysts at TD Securities noted that economic data has not provided any clear indication and is adding to the market volatility and uncertainty.
“Investors reduced length as Fed funds futures sold off and doubts emerged surrounding the early timing and magnitude of the pending policy rate reductions. Strong labor markets are associated with continued inflation pressures. And with core CPI much above the two percent target, the market concluded that a very early Fed easing is not in the cards,” the analysts said in a note Friday. “But with the most recent production prices coming in at below expectations, the market is once again going long, as it anticipates an early end to restrictive policy. It is likely that there will be data-driven volatility as gold trends to our $2,200/oz Q2 target.”
Commodity analysts noted that although $4.1 billion flowed out of the gold market last week, the selling pressure has firmly pushed the market outside of overbought territory.
Although the gold market appears to be running out of steam, waiting for the Federal Reserve’s long-expected pivot, analysts note that investors are reluctant to take any major short position in the precious metal.
Some analysts note that renewed chaos in the Middle East as U.S. and U.K. militaries U.S. and UK militaries bomb Houthi militants in Yemen. The U.S. continued its bombardment through the weekend.
Some analysts note that geopolitical safe-haven demand should continue to support gold prices above $2,000 an ounce.
While investors are reluctant to short gold, there is more give and take in the silver market, as investors increase their bearish bets while liquidating their long positions.
The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures fell by 6,032 contracts to 32,392. At the same time, short positions rose by 1,677 contracts to 24,044.
Silver’s net length now stands at 8,348 contracts, down sharply from the previous week, falling to a two-month low.
Along with gold, silver is also struggling due to market volatility surrounding the Federal Reserve’s monetary policy; however, analysts also note that silver is also struggling as concerns over the global economy continue to grow.
During the survey period, silver prices traded in a fairly tight range between $23.00 and $23.50 an ounce.
Many commodity analysts have said that a potential global recession could weaken silver’s industrial demand, which has been a significant support for prices.
At the same time, analysts also see limited downside as the green energy transition and unprecedented demand for solar energy will remain a solid pillar of strength for silver, even in the face of a recession.
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