According to the latest data from the Commodity Futures Trading Commission (CFTC), the relentless rally of the US dollar to its highest level in 20 years is forcing hedge funds to increase the downward trend in gold. In this context, in which direction do the gold forecasts of master analysts point?
Is it possible to fire up a much bigger rally?
The US dollar always has risks of lowering precious metal prices. On Monday, with the weakening of the dollar, the gold market made a 2% rally. Analysts point out that this is an indication that the market is susceptible to short-covering squeeze.
Gold last traded at $1,704, its highest level since September 15. According to analysts, bearish gold investors are closing their short bets as rising global economic uncertainty and a potential international banking crisis have rekindled interest in safe-haven assets. Netish Shah, head of commodity research at WisdomTree for gold forecasts, comments:
There are so many shorts. A small catalyst is all it takes to spark a much larger rally.
Analysts’ gold forecasts give warning signals
cryptocoin.comAs you follow, hedge funds increased their bearish bets for the seventh month in a row. Many analysts warn of excessive short position formation in the gold market.
The CFTC released the disaggregated Commitments of Traders report for the week ended Sept. 27. The report showed money managers cut their speculative gross long positions on Comex gold futures to 74,171 with 4,373 contracts. At the same time, short positions increased by 2,026 contracts to 117,265. Gold’s net short position is currently up about 17% from the previous week. Thus, it reached the contract level of 43,094. The position is at its lowest point since November 2018.
“There will be more pressure on short positions”
“At this stage, the main buyer will be money managers who are reducing short bets on COMEX gold,” says Ole Hansen, head of commodities strategy at Saxo Bank.
Netish Shah talks about increasing financial market uncertainty. Besides, he expects strong physical demand for gold to support prices. He also says that these should put more pressure on short positions. He explains that the disconnect between strong physical demand and weak paper investment is not sustainable.
Bearish analysts’ gold predictions
Some analysts view overtaking as a buying opportunity. Other analysts note that the market is still in a technical bear trend. Bearish analysts say these gold rallies are likely to be short-lived as the Federal Reserve’s aggressive monetary policy stance drives the US dollar and bond yields continue to rise.
Commodities analysts at TD Securities are also still waiting for gold prices to drop. They note that gold still has not seen a significant moment of capitulation. Meanwhile, interest markets continue to reflect a more aggressive Fed rate march. Gold markets are still not pricing in the next phase of the walking cycle. Analysts note in a note that amid persistent inflation, a restrictive interest rate regime will likely outlast historical precedents. They say this indicates a long period of marked weakness in precious metals.
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