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Hedge funds jumping into gold and silver ahead of breakout

It’s silver’s time to shine as hedge funds protect themselves against higher inflation caused by a broad-based rise in commodity prices, according to some commodity analysts, after reviewing the latest data from the Commodity Futures Trading Commission.

Silver has been attracting considerable attention as it benefits from persistently higher gold prices and renewed momentum in copper. Analysts note that silver’s role as an industrial and monetary metal is creating a perfect storm to drive prices higher.

The CFTC’s disaggregated Commitments of Traders report for the week ending May 14 showed money managers decreased their speculative gross long positions in Comex silver futures by 5,314 contracts to 60,206. At the same time, short positions fell by 188 contracts to 20,510.

The renewed buying momentum has pushed silver’s net length to a one-month high; the precious metal is net long by 39,696 contracts. During the survey period, silver prices tested critical long-term resistance at $29 an ounce.

Analysts expect silver’s speculative bullish positioning has only improved as prices broke critical resistance at $30 an ounce. The precious metal is seeing its best price in 11 years, last trading at $32.52 an ounce, up 4% on the day.

Commodity analysts at TD Securities noted market conditions that led to the silver breakout had been building for a while.

“Notable shortage of silver in China points to rising imports on the horizon, while the break north of $30/oz risks catalyzing substantial ETF buying activity that could substantially increase the risks of a #silversqueeze, particularly with the renewal of the “meme stock” craze which filtered into silver markets last time around,” the analysts said in a note Friday.

However, some analysts also note that investors should be careful at current levels because silver can be extremely volatile. Some analysts also highlight that although the market has significant momentum, it is looking a little oversold.

“Other than how impressive the bullish break has been, the other thing that stands out is just how overbought silver is using RSI on a daily timeframe, sitting at an eye-watering 79.74,” said David Scutt, Market Analyst at “To put that reading into context, there have only been four other occasions RSI has exceeded that level dating back to 2015, and on three of them, it coincided with a near-term peak.”

Analysts also note that speculative positioning is relatively elevated as the 50,000 level has represented a critical peak in bullish bets in the last four years.

While silver is attracting significant attention, gold has managed to hold its ground as speculative interest remains stable at elevated levels.

The disaggregated report showed that money-managed speculative gross long positions in Comex gold futures fell by 7,088 contracts to 171,868. At the same time, short positions rose by 2,752 contracts to 41,433.

Gold’s net length is relatively unchanged at 130,435 contracts. Gold’s speculative positioning has remained unchanged at around current levels for nearly a month. During the survey period, gold prices traded around $2,350 an ounce.

However, gold prices have significantly improved since last week after prices pushed above $2,400 an ounce. Some analysts have said that gold’s breakout, coupled with silver’s move, bodes well for further gains.

At the same time, analysts note that weaker economic data is helping to solidify expectations that the Federal Reserve will cut interest rates potentially twice this year.

“The string of weaker data has started to entice macro positioning, seeing money managers increase longs. However, while Fed rate cut probabilities are increasing, the timing remains uncertain and traders may want to see a convincing trend in the data disappointments before fully growing long exposure. With that said, we continue to argue that upside asymmetry is back in the gold market, with precious metals traders holding plenty of dry-powder and keeping a keen eye on the data moving forward,” said commodity analysts at TD Securities.

Source: Neils Christensen Kitco