Speculative investors have increased their bullish bets on gold for the third consecutive week, partly due to growing uncertainty about the sustainability of U.S. Treasury bonds, reigniting enthusiasm for depreciation trading. However, despite speculative bullish positions reaching their highest level this year, market sentiment remains lower than it was 12 months ago and has declined significantly compared to the beginning of the year.

Net long positions increased for the third consecutive day, reaching a nine-month high.

The Commitment of Traders (COT) report for the week ending August 18th showed that managed funds increased their total speculative long positions in Comex gold futures by 5,961 contracts to 154,595 contracts; short positions increased by 1,975 contracts to 12,947 contracts during the same period. Net long positions in gold reached 141,648 contracts, the highest level since late September last year. Over the past three weeks, net long positions in gold have increased by 18%, marking the longest consecutive increase since June. It is worth noting that speculative momentum remains below the 12-month high, when net long positions stood at 165,519 contracts. The recent peak in speculative gold holdings is expected in early January 2025, when net long positions reached 215,000 contracts.

Bank of America survey: Gold is the most undervalued

According to Bank of America's August global fund manager survey, gold still has the potential for further upside due to relatively subdued market sentiment. The survey, released last week, indicates that gold appears to be at its most undervalued since March 2023. The survey shows that 16% of fund managers believe gold is undervalued, compared to just 6% in July. Candace Browning Platt, Bank of America's global head of research, stated in a report on Sunday (August 23): "Our commodity strategy team's models show that current investor buying levels are more consistent with a gold price of $4,000 per ounce, and investor buying must accelerate further before prices reach $5,000. Central bank gold purchases have already fulfilled their obligations, with June's purchases significantly exceeding the 12-month average. A dovish signal from this week's Jackson Hole symposium would be beneficial for gold."

There is still room for a rebound, and $5,000 is coming into view.

Despite a significant rebound in the gold market from its July lows, some analysts point out that the market still has ample potential as the $5,000 mark comes into view. While market sentiment has clearly shifted to bullish, precious metals still face headwinds: rising oil prices are fueling inflation concerns and could force the Federal Reserve to raise interest rates before the end of the year. Bart Melek, head of commodity strategy at TD Securities, said, "As the Fed has yet to give a clear signal that it is prepared to combat higher inflation, concerns about a weaker dollar should provide good support for gold in the coming weeks. However, given that continued high oil prices could eventually push short-term interest rates higher, it is too early to assert that gold will surge to our target price of $5,350 per ounce."

Conclusion

Supported by multiple factors, including three consecutive weeks of speculative buying, a Bank of America survey indicating gold is undervalued, and continued central bank gold purchases, bullish sentiment in the gold market is clearly heating up, with the $5,000 mark now coming into focus. However, concerns about oil-driven inflation and the risk of a Federal Reserve interest rate hike remain key variables limiting the upside potential of gold prices. Policy signals from this week's Jackson Hole symposium may be a crucial turning point in determining whether gold can continue its current upward trend. As of 14:22 Beijing time on August 25, spot gold was trading at $4645.22 per ounce.