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Gold and silver hit a brick wall as hedge fund buying cools down
By: Neils Christensen | April 17, 2023

Gold and silver remain well supported in their technical uptrends, but both precious metals have some slowing momentum as hedge fund positioning becomes more nuanced in the marketplace.

Both gold and silver hit brick walls last week as prices pushed to new highs for the year. Gold was unable to break to new all-time highs above $2,075 an ounce and silver was unable to hold any gains above $26 an ounce. Despite renewed selling pressure, analysts said that both gold and silver remain in long-term bullish rallies as investors protect themselves from persistently elevated inflation and global economic uncertainty.

Some analysts have said that silver could have more potential than gold through 2023 as speculative bullish positioning remains well below peak levels last year when prices briefly pushed above $27 an ounce.

Some analysts said that silver continues to benefit as a monetary metal with the Federal Reserve looking to end its current hiking cycle with one last rate hike next month; at the same time, industrial demand is expected to remain robust through the year due to the global green energy transition, which is driving demand for solar power.

"Silver is a metal investors should be watching," said Robert Minter, director of ETF Investment Strategy at abrdn, in a recent interview with Kitco News. "Given its potential, we think silver is very much undervalued."

Not only has silver outperformed gold as the gold/silver ratio has fallen to its lowest level since mid-January below 80 points, but hedge funds continue to buy, even as they increase their short bets.

The CFTC's disaggregated Commitments of Traders report for the week ending April 11 showed money managers increased their speculative gross long positions in Comex silver futures by 4,164 contracts to 42,763. At the same time, short positions rose by 4,819 contracts to 24,973 contracts.

Silver remains net long by 17,790 contracts, virtually unchanged from the previous week. Looking at long-term trends, bullish speculative positioning is down roughly 60% from levels seen in March last year when prices were testing resistance around $26 an ounce.

Analysts note that speculative positioning in silver remains slightly more bullish compared to gold, which is seeing hedge funds take some profits after its month-long rally.

The disaggregated report showed that money-managed speculative gross long positions in Comex gold futures fell by 7,333 contracts to 135,015. At the same time, short positions fell by 1,808 contracts to 30,409.

The gold market remains net long by 104,606 contracts, down 5% from the previous week. While gold prices pushed above $2,050 an ounce to hit their highest level in 13 months, it did not have enough momentum to break to new all-time highs.

Analysts at TD Securities said that along with speculative positioning, other market indicators suggest gold prices could have reached their near-term peak.

"We caution that CTA positioning appears to have effectively reached 'max long,' with nearly every single trend signal on our radar already pointing to the upside. At the same time, while discretionary traders have covered their shorts, this cohort has yet to buy into the rally. Interestingly, however, other reportables still added to their length, but this was more than offset by money manager outflows. And, ETF holdings of gold remain lackluster month-to-date," the analysts said.

For some analysts, gold's profit-taking is not surprising. Ole Hansen, head of commodity strategy at Saxo Bank, said that gold saw its strongest four-week buying spree since mid-2019. He noted that gold is still down 38,000 contracts from last year's record high above $2,070 an ounce.

While gold prices continue to test support around $2,000 an ounce, many analysts note that gold still remains in an uptrend as prices hold above $1,950 to $1,960 an ounce.

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said that investor demand for gold will continue to be determined by the trend in the U.S. dollar.

"Resistance is seen into the $2050 level, but a further dollar weakness could push the price of an ounce to a fresh all-time high in the coming weeks.," she said.

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