While inflation pressures ease and the economy weakens, the Federal Reserve remains hesitant to shift its tightening bias, resulting in hedge funds staying out of the gold market. The fear trade that drove gold prices to $2,000 an ounce has subsided, prompting analysts to suggest that the market needs a new catalyst to drive further growth.
The latest trade data from the Commodity Futures Trading Commission (CFTC) reveals a decline in both speculative gross long positions and an increase in short positions for Comex gold futures. Money managers dropped their speculative gross long positions by 7,685 contracts to 132,924, while short positions rose by 6,235 contracts to 68,609. As a result, gold’s net length fell to 64,315 contracts, marking the market’s first decline since mid-October.
Despite this decline, many analysts remain optimistic about gold prices consolidating at their current levels. While the bullish speculative momentum has peaked, prices are holding strong at around $1,940 an ounce. David Morrison, senior market analyst at Trade Nation, suggests that this decline could potentially result in a useful consolidation before the bulls regain momentum and drive prices back above $2,000.
In terms of economic uncertainty, Michele Schneider, director of trading education and research at MarketGauge, believes that gold will continue to be supported at elevated levels while waiting for the Federal Reserve to make a policy mistake. Schneider points to the government’s massive debt as the biggest threat to U.S. monetary policy, as there are concerns about who will buy U.S. debt if no one else does. This potential misstep in monetary policy could push gold prices to all-time highs.
While gold remains within a broad trading range with little momentum, the silver market is also struggling to maintain its bullish momentum as prices struggle to hold above $24 an ounce. Nonetheless, silver continues to benefit from solid industrial demand, with analysts predicting a record 8% growth in industrial demand this year.
As investors keep an eye on gold and silver, some market analysts are turning their attention to platinum group metals, specifically platinum and palladium. The disaggregated report shows a decline in money-managed speculative gross long positions in platinum futures, accompanied by a rise in short positions. Société Générale analysts note that the platinum market has seen outflows, pushing it into oversold territory.