(Kitco News) - The gold market appears to only be able to attract investment capital on the short side of the market, while hedge funds are starting to dip their toes into the silver market, according to latest data from the Commodity Futures Trading Commission.

For the week ending Sept. 8, the disaggregated Commitment of Traders Report (COTR) showed money-managed speculative gross long positions of Comex gold futures rose by only 43 contracts to 112,684. At the same time, gross shorts rose by 13,815 contracts to 85,859. Despite the significant rise in shorts, the gold market remains net long by 26,825.

During the survey period, Comex December gold futures saw consistent selling pressure, falling more than 1.5%.

Bart Melek, head of commodity strategy at TD Securities, explained that investors shifted aggressively to the short side of the market as they refuse to rule out a rate hike in September. However, the rebuilding of short positions is at odds with other markets. The Fed funds futures market, a proxy for interest-rate expectations, is only pricing in a 30% chance the central bank will raise interest rates on Sept. 17.

However, economists note that there is a 50-50 chance that interest rate move higher this week.

Alex Thorndike, senior precious metals dealer at MSK Group, added that along with the Fed meeting, with the significant amount of short covering seen in August, it is natural to see traders reestablish their positions.

“After a round of profit-taking it seems short sellers have gained in conviction, especially as we move closer towards the Fed's suspected lift-off date,” he said. “In the lead-up to the FOMC this Thursday, we expect the metals to remain fairly heavy but not run away to the downside.”

Jonathan Butler, precious metals strategist at Mitsubishi, noted that gold net length is at its lowest level in three weeks.

“Following four successive weeks of short covering, the gross short book increased by 1.4 Moz last week (10%), which may reflect speculators positioning in case of the unlikely event that the Fed moves to hike interest rates this month,” he said.

Looking ahead, analysts at Commerzbank said they expect short positioning to continue to grow as the latest data doesn’t incorporate the latest selling pressure that pushed prices briefly below $1,100 an ounce at the end of last week.

While gold has been unable to attract any investment interest, the silver market appears to be finding a little success with a combination between new gross long positions and the short covering.

The disaggregated COTR showed money-managed speculative gross long positions of Comex silver futures rose by 2,498 contracts to 41,533. At the same time, short contracts fell by 1,087 contracts to 33,899. The silver market expanded its net length to 6,634 contracts.

During the survey period, Comex December silver futures rose slightly more than 1%.

Melek added that the move in silver could reflect renewed industrial interest in the precious metal, which was beaten to new multi-year lows in July.

Christensen of Kitco News; nchristensen@kitco.com

Follow me on Twitter @neils_C

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