Inflation fears force hedge funds to ditch gold, increase bearish bets in silver

Gold and silver continue to defy the odds as the precious metals hold critical support even as inflation fears prompted hedge funds to liquidate their bullish positionings and increase their speculative bets, according to the latest trade data from the Commodity Futures Trading Commission.

Commodity analysts at Société Générale noted that the gold market led speculative outflows in the commodity space last week as $6.9 billion fled the precious metal.

The CFTC's disaggregated Commitments of Traders report for the week ending Feb. 13 showed money managers decreased their speculative gross long positions in Comex gold futures by 13,674 contracts to 100,642. At the same time, short positions increased by 20,219 contracts to 66,466 contracts.

The gold market is now net long by only 34,176 contracts as bullish speculative positioning falls to its lowest level since Oct. 16. Although bullish interest in gold continues to weaken, the price continues to hold critical support at $2,000.

Bearish momentum in gold picked up last week after the U.S. Labor Department said that its Consumer Price Index rose more than expected, increasing 3.1% in the 12 months to January. Inflation was hotter than expected, as economists were expecting the annual CPI to rise 2.9%.

Renewed inflation fears caused markets to push back the timing of a potential rate cut from the Federal Reserve. A March rate cut has been pretty much priced out of the market and there is less than 50% chance of easing in May.

Although gold prices have room to move lower, analysts see a relatively solid floor in the market as the Federal Reserve is expected to eventually ease its monetary policy.

"We have highlighted on several occasions in recent months that both [gold and silver] are likely to remain stuck until we get a better understanding about the delivery of future U.S. rate cuts. Until the first cut is delivered, the market may at times run ahead of itself, in the process building up rate cut expectations to levels that leave prices vulnerable to a correction," said Ole Hansen, head of commodity strategy at Saxo Bank, in a comment to Kitco News Friday.

At the same time, while lackluster Western investment demand keeps a lid on prices, Hansen noted that the market continues to be supported by robust Asian demand.

“Gold will likely struggle in the short term, but as the rate cut expectations are being dialed back, but overall, I look forward to seeing how Chinese investors respond to slightly lower prices next week. I believe the physical demand from central banks and retail investors, not least in China, will continue to provide a soft floor under the market,” he said.

Commodity analyst at TD Securities said that the gold market is building momentum for a potential short squeeze as macro traders are under-positioned for the Federal Reserve’s easing cycle.

“This highlights a set-up for the yellow metal that is ripe with asymmetry and prone to a material short squeeze as Fed officials contemplate the start of a cutting cycle. In this sense, algorithmic selling exhaustion has already morphed into buying activity, adding pressure on macro trader shorts,” the analysts said.

Along with gold, silver has also struggled as potentially higher for longer interest rates pushes the market into bearish positioning.

The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures rose by 903 contracts to 33,004. At the same time, short positions rose by 5,287 contracts to 41,987 contracts.

Sentiment in the silver market pushed further into bearish territory by 8,983 contracts. Speculative short positioning has risen to its highest level since early March 2023.

Despite the bearish sentiment, silver prices held critical support at $22 an ounce. The precious metal bounced off a three-month low to end last week with nearly a 7% gain.

Although interest rate expectations are weighing on silver, some analysts have said that silver is a more attractive inflation hedge than gold and could start to outperform the yellow metal.

Kitco Media

Neils Christensen

Time to Buy Gold and Silver

Tim Moseley

Gold prices holding above $1,750 as core PCE inflation rises 4.8% in June

The gold market is holding on to solid gains has inflation pressures continue to rise more than expected.

On a monthly basis, the core Personal Consumption Expenditures price index increased 0.6% last month, the U.S. Department of Commerce said on Friday. The inflation data was hotter than expected as consensus forecasts were calling for a 0.5% rise.

On an annual basis, core PCE increased 4.8%, up from last month’s reading at 4.7%.

The core inflation strips out volatile food and energy prices and is the U.S. central bank's preferred inflation measure.

Meanwhile, headline inflation also rose more than expected, increasing 1.0%, up from May’s increase of 0.6%. For the year inflation jumped to 6.8%, up from May’s reading of 6.3%. Inflation continues to hold near its highest level in 40 years.

The gold market is not seeing much reaction to the latest inflation data as it holds most of its recent gains above $1,750 an ounce. August gold futures last traded at $1,755.60 an ounce, up 0.30% on the day.

Analysts have said that the latest inflation data is a doubled edged sword for the gold market. The latest data shows that inflation remains persistently high; however, it could force the Federal Reserve to continue to aggressively raise interest rates longer than markets currently expect.

However, some analysts note that with two months before the next Federal Reserve monetary policy meeting, gold has room to move higher as expectations remain that inflation will start to cool, giving the central bank room to slow the pace of its rate hikes through the end of the year.

Along with the stronger than expected inflation data. The report also showed that solid consumption and income growth.

Consumer spending last month increased 1.1%, up from 0.2% in May. Economists were expecting to see a 0.9% increase.

At the same time, income rose 0.6%, up from 0.5% in May. Consensus forecasts called for a 0.5% increase.

By Neils Christensen

For Kitco News

Time to buy Gold and Silver on the dips

Tim Moseley

Gold sees modest rally following mildly dovish FOMC statement

Gold prices are steady to firmer in early afternoon U.S. dealings Wednesday, supported by the conclusion of the U.S. central bank meeting this afternoon that was deemed just a bit dovish. Gold prices were modestly down just prior to the FOMC statement's release. June gold futures were last up $1.50 at $1,871.80 and May Comex silver was last down $0.136 at $22.46 an ounce.

The just-released data point of the week, the U.S. Federal Reserve Open Market Committee (FOMC) meeting statement, saw the Fed raise the key U.S. interest rate, the Fed funds rate, by 0.5%. The Fed funds range is now 0.75% to 1.0%. The rate hike is the first 0.5% increase in 22 years and comes amid the highest U.S. inflation levels in 40 years. The statement said the Fed will continue to raise interest rates as appropriate. The FOMC statement said that starting June 1 the Fed will begin to reduce its balance sheet of securities by $95 billion per month. The Fed also said the Russia-Ukraine war, rising Covid cases in China and supply chain bottlenecks are the main causes for rising inflation. The marketplace's initial read on the statement is a bit dovish on U.S. monetary policy. Others might argue that the statement was just less hawkish than previous recent remarks from Federal Reserve officials. As of this writing, traders were awaiting Fed Chairman Jerome Powell's press conference.

A Barron's headline this morning read: "The Fed's big hikes won't fight inflation from soaring oil prices." The article argues that central banks can only control the demand side of the economic equation by raising interest rates — not the supply side.

Commodities at risk of reversing massive gains with 'wild run' similar to 2008, gold price to take on $2k – Bloomberg Intelligence

Global stock markets were mostly lower overnight. U.S. stock indexes are higher in early-afternoon trading. The European Union has proposed a phased-in ban on Russian crude oil imports and that has crude oil prices sharply higher at mid-week. The key outside markets today sees Nymex crude oil futures prices are trading around $107.30 a barrel. Meantime, the U.S. dollar index is a bit weaker in early afternoon trading. The yield on the 10-year U.S. Treasury note is presently fetching 2.981%. The 10-year yield early this week briefly hit a 3.5-year high just above 3%.

Technically, June gold futures see a three-week-old price downtrend in place on the daily bar chart. Bears have the overall near-term technical advantage. Bulls' next upside price objective is to produce a close above solid resistance at last week's high of $1,935.50. Bears' next near-term downside price objective is pushing futures prices below solid technical support at $1,800.00. First resistance is seen at $1,883.00 and then at $1,900.00. First support is seen at this week's low of $1,849.70 and then at $1,835.00. Wyckoff's Market Rating: 4.0

May silver futures see a steep price downtrend in place on the daily bar chart. The silver bears have the solid overall near-term technical advantage. Silver bulls' next upside price objective is closing prices above solid technical resistance at $24.00 an ounce. The next downside price objective for the bears is closing prices below solid support at the December low of $21.445. First resistance is seen at this week's high of $22.83 and then at $23.00. Next support is seen at this week's low of $22.12 and then at $22.00. Wyckoff's Market Rating: 2.5.

May N.Y. copper closed up 540 points at 432.50 cents today. Prices closed near the session high today. The copper bears have the firm overall near-term technical advantage. A price downtrend is in place on the daily bar chart. Copper bulls' next upside price objective is pushing and closing prices above solid technical resistance at 450.00 cents. The next downside price objective for the bears is closing prices below solid technical support at the December low of 411.65 cents. First resistance is seen at Tuesday's high of 434.40 cents and then at this week's high of 438.55 cents. First support is seen at today's low of 424.00 cents and then at this week's low of 419.00 cents. Wyckoff's Market Rating: 3.0.

By Jim Wyckoff

For Kitco News

Time to buy Gold and Silver on the dips

 

Tim Moseley