Gold trading reminder: Hedge funds increase bullish bets on gold, be wary of Powell’s hawks to suppress gold prices
During the Asian session on January 31, spot gold fluctuated within a narrow range and is currently trading around $1922. Spot gold closed down 0.28% on Monday at $1,923.06. The price of gold has soared 17.7% in the past three months, and has risen by more than 5% since 2023. While hedge funds increased their bullish bets on gold, analysts warned that this week’s Federal Reserve interest rate decision will be very important for gold prices. If Powell releases a hawkish signal, gold prices may pull back.
Hedge funds ramp up bullish bets on gold
According to the latest trading data from the Commodity Futures Trading Commission,Hedge funds increased their long positions in gold and reduced their short positions for the eighth straight week.
The CFTC’s Disaggregated Commitments of Traders report for the week ended Jan. 24 showed that money managers’ aggregate speculative long position in Comex gold futures increased by 7,279 contracts to 131,501 contracts. Meanwhile, short positions fell by 3,223 lots to 51,622 lots.
The gold market is currently net-long 79,879 contracts, maintaining last week’s nine-month high. Gold prices tested resistance just below $1,950 an ounce during the survey period.
Analysts say that if Powell hawks this week, gold prices could easily pull back
Despite strong bullish technical momentum for gold prices, analysts continued to warn investors that a pullback was ripe for the metal as it hit resistance at a nine-month high.
Nicky Shiels, director of metals strategy at MKS PAMPs, pointed out that hedge funds’ total long gold of 16 million ounces is still below last year’s peak of 21 million ounces. She added that while gold has some upside, it could be sensitive to the Federal Reserve’s monetary policy decision this week.
“Things are getting better, but not quite right,” Shiels said. “During the last very critical FOMC meeting, there were a lot of voices, and Powell may be pushing market expectations down and becoming more hawkish.”
According to Adrian Day, Chairman and CEO of Adrian Day Asset Management,Gold prone to pullback as Fed decides to hike rates this week, because Federal Reserve Chairman Powell will adopt hawkish remarks at the press conference that day. “I think gold is vulnerable to a pullback because the market is so convinced the Fed will raise rates by 25 basis points and paused in March,” he explained.
Adrian Day warns that if Powell makes hawkish comments downplaying the idea of a pause in rate hikes, it could temporarily send gold prices below $1,900 an ounce. He also clarified that if the Fed continues to raise interest rates more than expected, it will “destroy” the gold market.
The stats and events to watch on Tuesday
Institutional view
1. Heraeus Precious Metals: The prospect of a Fed rate hike is crucial to gold;
Precious metals firm Heraeus Precious Metals said the prospect of a rate hike by the Federal Reserve could be key to gold’s move. Gold prices could get a boost as the rate hike cycle draws to a close, the firm said in a note. With economic indicators such as the U.S. manufacturing PMI starting to show that the economy may be cooling, the Fed could raise interest rates sooner than expected. Traders are betting the Fed will raise rates by 25 basis points this week and again at a subsequent meeting. A less hawkish Fed could lead to a weaker dollar, supporting higher gold prices. If the Fed unexpectedly raises interest rates by 50 basis points, it may stimulate the dollar to rise and gold prices to fall;
2. Exinity analyst: If the Fed hawks, gold will give up the gains since the beginning of the year;
Han Tan, chief market analyst at Exinity, said: “If U.S. economic growth momentum remains stubborn in the face of demand-suppressing interest rate hikes, it could force policymakers to keep hitting the brakes. Such hawkish policy signals could prompt gold to retreat year-to-date. part of the increase;”
Spot gold daily chart
At 9:22 on January 31, Beijing time, spot gold was quoted at $1923.34 per ounce
