U.S. dollar strength prompts hedge funds to drop bullish gold bets

U.S. dollar strength prompts hedge funds to drop bullish gold bets by Neils Christensen for KitCo News

The U.S. dollar appears to be losing the race to the bottom in currency markets, which prompted some hedge fund managers to reduce their bullish exposure in gold, triggering a strong selloff in the yellow metal, according to some analyst.

The latest trade data from the Commodity Futures Trading Commission (CFTC) shows that net bullish bets in the gold market dropped to their lowest level in roughly 15 months.

CFTC disaggregated Commitments of Traders report for the week ending Sept. 22 showed money managers lowered their speculative gross long positions in Comex gold futures by 21,901 contracts t0 144,670. At the same time, short positions increased by 7,749 contracts to 63,222.

Gold’s net length now stands at 81,448 contracts, down nearly 27% from the previous week. During the survey period, the long liquidation pushed gold prices to support levels just above $1,900 an ounce. Since the end of the survey period, gold prices have lost further ground falling to a two-month low.

Although gold prices have seen some significant selling pressure, analyst do see a silver lining in the price action. Many analyst have said that the drop in speculative longs is helping to shakeout “weak hands” in the marketplace, allowing gold to build a strong base from which to rally off of.

Analysts have said that even during gold’s consolidation between $1,900 and $2,000 the precious metal was overbought.

“Considering that positioning remained bloated, adding some fuel to the pain trade lower in prices, the yellow metal traded through support into a new range, thereby prompting money managers to aggressively liquidate their length,” said analysts at TD Securities in a report Friday. “However, it is worth highlighting that traders also added some shorts — signaling the return of some healthy skepticism in the gold market.”

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