For the eighth straight week, hedge funds increased their bullish positions in gold and decreased their bearish bets, according to the latest trading data from the Commodity Futures Trading Commission.

In the CFTC's disaggregated Commitments of Traders report for the week ending January 24, financial managers on the Comex increased their speculative long positions in gold futures by 7,279 contracts to 131,501. At the same time short positions decreased by 3,223 contracts to 51,622.

Currently, the gold market has a net long position of 79,879 contracts. During the survey period, gold prices tested $1,950 an ounce.

Nicky Shiels, head of metals strategy at MKS PAMPs, reports that gold investors have bought 2.6 million ounces of gold in speculative positions and exchange-traded funds this year so far. Hedge funds are gross long 16 million ounces of gold, still below last year's peak of 21 million ounces.

Despite the fact that gold had a strong technical bullish momentum, it is now undergoing a correction. While gold has upside potential, it is sensitive to the Fed's monetary decision due on Wednesday.

Since November, gold has benefited from a change in expectations regarding the easing of the aggressive monetary policy of the Federal Reserve. Markets have almost fully priced in a 25 basis point increase from the Federal Reserve, which sent the U.S. dollar down to a seven-month low.

It is likely that the Federal Reserve will act more hawkish than markets expect, which will lift the U.S. dollar and put pressure on gold prices.