Hedge funds fled gold ahead of the Fed rate hike but didn't go very far

NEW YORK (June 21)  Hedge funds fled the gold market in anticipation of the Federal Reserve's biggest rate hike in 28 years, according to the latest trade data from the Commodity Futures Trading Commission.

Although investors quickly unloaded their bullish bets in gold and increased their bearish positioning, some analysts note that sentiment remains pretty neutral. Gold prices remain caught in a trend between support at $1,800 an ounce and resistance at $1,850 an ounce.

Last week the Federal Reserve raised interest rates by 75 basis points, pushing real interest rates higher, which was negative for gold; however, some analysts note that growing recession fears and volatility in equity markets are providing some support for the precious metal.

"Gold remains rangebound following a week of high drama that saw dramatic yield spikes being offset by growing unease about the economic outlook with recession worries on the rise as central banks step up their efforts to curb inflation," said Ole Hansen, Head of Commodity Strategy at Saxo Bank. "Speculators cut bullish futures to a nine-month low ahead of last week's FOMC rate hike announcement while total bullion-backed ETF holdings on Friday dropped to three months low, both highlighting the current uncertainty about the short-term direction."

The CFTC disaggregated Commitments of Traders report for the week ending June 14 showed money managers lowered their speculative gross long positions in Comex gold futures by 6,104 contracts to 109,111. At the same time, short positions rose by 14,522 contracts to 72,206.

Gold's net length now stands at 36,905 contracts, nearly 36% from the previous week. During the survey period, gold prices tested support just above $1,800 an ounce.

Commodity analysts at TD Securities said that looking past the recent volatility, the Federal Reserve's plan to aggressively raise interest rates will remain a drag on the gold market.

"With the Fed delivering the expected 75 bps and the market believing that the U.S. central bank may stop the tightening cycle at the first sign of an economic slowdown, gold increased to the recent highs and likely saw net length grow later in the week. Looking forward, higher rates should again force prices and long exposure in gold lower," the analysts said.

Along with gold, investors remain relatively bearish on silver as hedge funds increased their short exposure to the precious metal.

The disaggregated report showed that money-managed speculative gross long positions in Comex silver futures rose by only 62 contracts to 40,712. However, short positions rose by 5,285 contracts to 39,103.

Silver's positioning is net long but by only 1,609 contracts. Silver prices tested support at $21 an ounce during the survey period.

The silver market continues to struggle as both a monetary metal, with gold stuck in neutral, and an industrial metal, weighed down by solid weakness in the copper market.

Copper's disaggregated report showed money-managed speculative gross long positions in Comex high-grade copper futures fell by 7,716 contracts to 36,554. At the same time, short positions rose by 4,610 contracts to 44,764.

Positioning in the copper market has again turned solidly bearish with a new net short position of 8,210 contracts. Analysts have said sentiment has soured even further as prices trade below $4 a pound.

"The position squeeze in copper finally ran out of steam, after a short-covering rally catalyzed by optimism surrounding Shanghai's reopening ran out of steam. Ultimately, our gauge of metals supply risk has collapsed, which leaves metals prices without an offsetting force against rising global macro headwinds. A one-time demand boost from a global stockpiling impulse has already ended," said analysts at TD Securities.

KITCO