(Kitco News) – A hawkish tilt to the Federal Reserve’s latest monetary policy decision backed by comments from its Chair Jerome Powell encouraged hedge funds to increase their short bets in gold and ditch their bullish calls, according to the latest data from the Commodity Futures Trading Commission.
The CFTC disaggregated Commitments of Traders report for the week ending Feb. 1 showed money managers dropped 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 length now stands at 49,914 contracts, down nearly 51% survey period. Although gold has been anchored around $1,800, the increase in bearish speculative positioning briefly pushed prices to a one-month low at $1.780.60 an ounce during the survey period.
Gold’s net length dropped to its lowest level since September. Matt Simpson, market analyst at City Index, noted that gold’s net length dropped at its fast pace in nearly three years.
Money managers increased their bearish exposure to gold after the Federal Reserve set the stage for a rate hike in March. The U.S. central bank also laid the foundation to lower its balance sheet before the end of the year.
Since the meeting, markets have priced in the possibility of five rate hikes this year with a potential for a 50-basis-point move in March. Since the January monetary policy meeting, positive economic data, including strong January employment numbers, have further solidified expectations.
Daniel Briesemann, precious metals analyst at Commerzbank, said that there are risks that gold prices could struggle in the near term ahead of the next Federal Reserve monetary policy meeting in March.
“It remains to be seen how long gold can hold its own in the current market environment, which is characterized among other things by rising rate hike expectations,” he said. “It is also becoming clear that gold is finding it difficult to make any noticeable gains in the current market environment. We expect the performance of the gold price to be subdued until the Fed first raises interest rates, which we believe will happen in March.”
Similar to gold, the silver market saw a sharp drop in bullish speculative interest.
The disaggregated report showed that money-managed 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 length stands at 11,959 contracts, down more than 56% compared to the previous week.
An increase in bearish positioning pushed the silver price from $24 an ounce to $22.00 an ounce during the survey period.
While silver remains caught in a fairly wide channel, analysts are bullish on the precious metal as industrial demand remains solid, which can be seen in copper as prices hold steady just below $4.50 a pound.
Copper’s disaggregated report showed money-managed speculative gross long positions in Comex high-grade copper futures fell by 8,323 contracts to 52,531. At the same time, short positions rose by 1,074 contracts to 33,764.
Copper’s net length is currently at 18,767 contracts, down more than 33% from the previous week. However, the shift in sentiment had little impact on prices.
“The Chinese New Year lull saw copper trade sideways as funds cut their net long by one-third to a six-week low at 19.2k and down 65% from the recent cycle high from last October,” said Ole Hansen, head of commodity strategy at Saxo Bank.