GOLD
Gold ETP Sales A lot has also been made of the recent sizeable
outflows from gold ETPs and the decline in the net long positions taken by non-commercial participants in the US futures market (the latter due mainly to a jump in shorts). “However, these investor flows simply reflect the current mood in the market and tell us very little about what will happen next,” says Jessop. “Speculative” positions in the CFTC data tend to move up and down at the same time as prices. “If anything, the fact that net longs are now relatively small suggests plenty of scope for a renewed surge in buying, including short covering,” he adds. ETP liquidation might, once again, be a temporary phenomenon as the ‘Gold Oversold’ notes are published and longer term institutional investors hold onto their hedges. But sentiment remains relatively sour. Nevertheless, there are signs that traditional demand
is improving. Physical buying from India has been above-average with gold in INR-terms back at levels seen in May 2012. “The decline in the local gold price in India already more than offsets the rise in import taxes at 6%,” de Wet confirms. And average volumes this year on the Shanghai Gold Exchange’s benchmark contract have more than doubled according to Bloomberg. Indian and Chinese demand will rise at least 11% this year say the WGC.
While the broader
macro
backdrop
remains
gold-favourable given the negative interest rate environment, lingering sovereign debt uncertainties and the weakening of the dollar drawing investment interest, the physical market response has been more mixed, making prices susceptible to profit-taking in the near term.
“
...investor flows simply reflect the current mood in the market and tell us very little about what will happen next”
“All is not lost for gold,” according to Saxo’s Hansen,
“but it makes sense to lower future expectations given the current economic climate.” However,
if current market sentiment persists –
even in the absence of any compelling evidence for a widespread economic recovery – gold prices could be susceptible. Many FX strategists also expect the US dollar to strengthen against most major currencies by year-end meaning more bad news for gold prices. In the near-term, Hansen and others remain acutely
aware that further weakness below $1,500/oz could trigger further losses from long liquidations and technical traders going short. •
Guy Isherwood is Editor of Commodities Now.
INTERNATIONAL GOLD MINING CONFERENCE Zhaoyuan, China | 20-21 June 2013
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