According to the latest trading data from the Commodity Futures Trading Commission, hedge funds have begun increasing their short positions. Meanwhile, expectations are changing regarding the timing of the Fed’s first rate cut of the upcoming easing cycle. These developments have an impact on gold prices.
Gold bulls expecting a strong rally were disappointed!
Analysts state that gold is weakening as reduced interest rate cut expectations support the US dollar. David Morrison, senior market analyst at Trade Nation, comments:
It was a disappointing start to the year for gold bulls, many of whom expected a strong sector-wide rally in 2024. However, the recovery of the dollar since the end of December continues to put downward pressure on gold prices. We’ll see if this dynamic changes in the coming weeks and months.
Short gold positions are increasing
The CFTC’s disaggregated Commitments of Traders report for the week ending Jan. 16 showed money managers reduced their speculative gross long positions in Comex gold futures by 3,402 contracts to 130,931. At the same time, short positions increased by 1,828 contracts to 47,702 contracts. The gold market remained in a net long position with 83,229 contracts, unchanged compared to the previous week. Gold prices continued to consolidate between $2,050 and $2,000 during the survey period. Commodity analysts at TD Securities interpret the report as follows:
Following hawkish comments from Fed officials, doubts that the Fed would ease quickly and aggressively led speculators to aggressively reduce their gold long positions. Money managers assumed the carrying cost and opportunity could remain high longer, and the Treasury market sold off at the end of the CFTC reporting period.
Only in this case can gold prices rise significantly!
Strong economic data released last week has left market expectations for a rate cut in March almost a 50/50 coin toss. Predictions are down significantly from the 80% chance priced in the previous week. According to TDS analysts, the market needs to see significantly weaker economic data for gold to recover. In this context, analysts make the following statement for gold prices:
Only weaker US data could persuade the Fed to turn dovish. This means that a convincing upward trend towards our $2,200 average price next quarter is unlikely to develop by then.
The short game will continue to be painful!
Despite the headwinds, some analysts continue to see bullish potential for gold prices. James Stanley, senior market analyst at Forex.com, says gold’s price action is creating a lot of pain for bearish investors. The analyst notes that solid selling pressure was met with strong buying. Based on this, Stanley makes the following comment:
I think this short game will continue to be painful. If/when it breaks, sales could be huge. However, these bear traps have made sellers very cautious. A lot of bait has been laid out for sellers to chase the breakouts and then we see a big move to the upside.
Negative weather creates asymmetric risks for gold
Nicky Shiels, head of metals strategy at MKS PAMP, says negative sentiment in the market creates asymmetric risks for gold prices. At the same time, some analysts point to geopolitical uncertainty due to the ongoing chaos in the Middle East. He says this and recession fears continue to support long-term gold prices.
Short-term technical view of gold prices
Market analyst James Hyerczyk evaluates the technical outlook for gold as follows. The market has a bearish outlook for gold in the short term. However, it is preparing to react sensitively to upcoming economic reports. The focus is on how the Fed interprets these data points and its subsequent decisions on rate cuts are crucial to the future trajectory of gold prices.
Gold prices are well above the minor support at $2009.00 and the 50-day moving average at $2024.99. The shiny metal is currently trading at $2,029.61. This position indicates a balancing act for gold. Meanwhile, its immediate trend is tied to the 50-day MA. Holding above this level could fuel a short-term rally, keeping bullish sentiment alive. The market is now focusing on whether gold can maintain this support. This is important, especially as the main support at $1,952.21 moves lower. Investors watch these levels for signs that the uptrend will continue or a potential shift in momentum.
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