Due to the regional conflict in Israel causing further chaos in the Middle East, gold prices have surged this week driven by safe haven demand.
According to the latest data on commodity futures trading, in addition to the new geopolitical momentum of gold, analysts point out that due to the rise in bond yields and hedge funds fleeing the gold market, their positions have become highly oversold, and the market is ripe for short selling.
The trader commitment classification report for the week ending October 3rd shows that fund managers have reduced their speculative long positions in Comex gold futures by 14168 contracts to 100500 contracts. Meanwhile, the short position increased by 16831 contracts to 108061.
The current speculative interest in the gold market is a net short position of 7561 contracts. The bearish position of precious metals is at its highest level since early November.
In the week ending last Tuesday, the surge in yields and the US dollar has prompted funds to accelerate their selling of precious metals. Funds have held net short positions in gold for the first time since November last year, and the significant selling of silver and platinum has also led to net short positions. "Ole Hansen, head of commodity strategy at Shengbao Bank, said," This has put them in the face of a short covering action on Monday due to increased geopolitical tensions
Analysts pointed out that the last time gold prices were so bearish, the market rebounded from a double bottom of around $1600 per ounce and then began to rebound to $2000 per ounce.
Fred Hickey, founder of the "High Tech Strategist" investment newsletter, pointed out in social media comments that net short positions mark the bottom of the gold market in the past 8 years. He added that each market bottom is gradually higher than the next, which may mean that subsequent short squeeze may push prices to historical highs.
Hickey added that he believes there is potential for a long-term increase in gold prices, as they have successfully held a key support level above $1800 per ounce.
This is not only the extreme bearish stance of gold that supports the new optimism in the market. Some people believe that as the bond market may be at a turning point, prices may rise.
Analysts point out that as the long end of the curve has reached a 16 year high, precious metals are very sensitive to rising bond yields. Analysts say this is the most severe bond bear market on record.
Some analysts point out that both gold and bonds are facing excessive downward pressure.
However, even in the current market environment, some analysts suggest that there is still room for further decline in the bond market. Analysts at Societe Generale say they expect the 10-year bond yield to rise above 5% before investors see market value.
Barchart Senior Market Analyst Darin Newsome stated in a social media post that based on the technological outlook, bond prices must close above September prices of 108-120 to complete a long-term surge reversal.
Some analysts also pointed out that there is still room for improvement in bond yields.
Commodity analysts at TD Securities seem to have a neutral attitude towards gold in the near future, as Monday's rise has pushed gold prices into a "no man's land".
Although safe haven buying may trigger marginal buying activity among CTA trend followers in this transaction, our position analysts believe that the risk of large-scale buying plans below the $1935/ounce range is minimal. At the same time, the algorithm is unlikely to increase short positions above the $1810/ounce range, indicating that prices are currently in the unmanned zone of CTA cash flow.
Like gold, hedge funds have also looked at blank silver after maintaining a relatively neutral attitude towards it in the past few weeks.
The classification report shows that the total speculative long position in fund management of Comex silver futures decreased by 3298 contracts to 29421. At the same time, the short position increased by 4219 contracts to 31671 contracts.
The silver market currently has a net short position of 2250 contracts.
The silver market delicately balances geopolitical uncertainty with strong US economic signals. In the short term, traders should be prepared for mild volatility, "said James Hyerczyk, an analyst at ForexEmpire. com.
As of press release, spot gold is currently trading at $1861.15 per ounce, up 0.04%.
