Speculative investors have increased their bullish gold positions for a third consecutive week, driven partly by growing uncertainty over the sustainability of US Treasury debt, which has reignited the debasement trade. However, despite speculative long positioning reaching its highest level this year, sentiment remains below where it stood 12 months ago and is notably weaker compared with the start of the year.

Net Longs Rise for Third Week, Hitting Nine-Month High

Data from the Commodity Futures Trading Commission (CFTC) for the week ending August 18 shows that managed funds increased their total speculative long positions in Comex gold futures by 5,961 contracts to 154,595, while short positions rose by 1,975 contracts to 12,947 during the same period. Gold net long positioning stood at 141,648 contracts, the highest level since late September last year. Over the past three weeks, net longs have grown by 18%, marking the longest consecutive stretch of accumulation since June.

It is worth noting that speculative momentum remains below the 12-month high of 165,519 contracts. The recent peak in speculative positioning for gold was seen in early January 2025, when the market recorded net longs of 215,000 contracts.

Bank of America Survey: Gold Most Undervalued

According to Bank of America's August global fund manager survey, gold still has further upside potential given that market sentiment remains fairly subdued. The survey, released last week, indicated that gold appears to be at its most undervalued level since March 2023. It showed that 16% of fund managers believe gold is undervalued, up from just 6% in July.

Candace Browning Platt, head of global research at Bank of America, said in a report on Sunday (August 23): "Our commodity strategy team's models indicate that current investor buying levels are more consistent with a gold price of $4,000 per ounce. Before prices reach $5,000, investor buying will need to accelerate further. Central bank gold purchases have already done their part, with June buying volumes well above the 12-month average. If this week's Jackson Hole symposium delivers a dovish signal, it would be positive for gold."

Room for Recovery Remains, $5,000 Comes Into View

Although the gold market has rebounded significantly from its July lows, some analysts point out that there remains ample potential as the $5,000 level begins to come into view. While sentiment has clearly turned bullish, the precious metal still faces headwinds: rising oil prices are stoking inflation concerns and could potentially force the Federal Reserve to raise interest rates before year-end.

Bart Melek, head of commodity strategy at TD Securities, said: "Since the Fed has not yet signaled clearly that it is prepared to fight higher inflation, dollar depreciation concerns should provide good support for gold in the coming weeks. However, given that sustained higher crude oil prices could ultimately push short-term rates higher, it is still premature to assert that gold will surge to our target of $5,350 per ounce."

Conclusion

With speculative funds adding positions for three consecutive weeks, the Bank of America survey indicating gold is undervalued, and central bank buying continuing to provide a floor, bullish sentiment in the gold market is clearly heating up, with the $5,000 level beginning to enter the market's field of vision. However, oil-driven inflation concerns and the risk of Fed rate hikes remain key variables capping upside potential. The policy signals from this week's Jackson Hole symposium could prove to be an important watershed in determining whether gold can sustain this rally.

As of 14:22 Beijing time on August 25, spot gold was trading at $4,645.22 per ounce.