Gold was the perfect opportunity to continue with a strong rally only if the hedge funds could increase their long exposures after last year's prolonged decline in precious metal.
The metal rose to a ten-week high at $ 1346.80 per troy ounce due to mounting fears of a slowdown in the global economy. "Fast money", however, missed the rally this time.
The funds remain with weak gold exposures, according to January's futures data, coming late due to the US government's closure.
"Despite the positive sentiment, investors have not yet begun to buy gold, catching the market aggressively." - says Joni Teves, strategist at UBS Group AG.
Analysts at Societe Generale earlier made a recommendation to buy gold this year, saying the metal would "take off" given its demand for safe heaven. Dovish FED and central bank purchases also help raise the price of gold.
Last year, the bears were "crazy", and hedge funds and big speculators gained the largest short position in gold futures and options, according to CFTC. They bet that gold will remain under pressure because investors preferred the US dollar as a heaven asset during the China-US trade war.
Not everyone, however, thinks the funds have a reason to be all-in for gold. For now.
"We get the reverse snowball effect in the gold rally, the higher the price, the more money the asset attracts." - says David Govett, Head of Metals Trading at Marex Spectron Group in London. "But in general, the stock market behaves well and I doubt that the US dollar will rise above its current levels, so I think the upward movement will soon come to an end." - adds Govett.
Source: Bloomberg Finance L.P.
Graphs: Used with permission of Bloomberg Finance L.P.
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