Gold Market Report
PRICE OF GOLD slipped below $1,000 an ounce early
Monday in London dealing, slipping 1% from last week's record New York close
as the US Dollar bounced on the currency markets and all other asset classes
– including government bonds – ticked lower together.
Crude oil fell below $69 a barrel, while Asian stock markets averaged worse
than 1% losses.
Germany's Dax index dropped 0.9%, unwinding the last two days of gains.
The Dollar knocked two cents off the British Pound and one cent off the Euro,
helping to hold the Gold Price above £600 and €685 an ounce
Both US and German government bonds also fell, pushing the yield offered by
10-year Treasuries up to 3.37%. Ten-year Bund yields rose to 3.25%.
"Although we remain bullish on Gold, upward momentum might fade,"
says Standard Bank in Monday's Commodities Daily, pointing to data released after Friday's close by US regulator
the Commodity Futures Trading Commission.
Speculative betting by hedge funds and other non-industry players in Gold
Futures jumped last week, driving up their "net long position" of
bullish minus bearish bets by the equivalent of 161 tonnes week-on-week,
according to Standard's maths.
"[That's] the largest weekly rise in the speculative position in at
least two years. At the same time, the net long speculative positions have
risen to 40% as a percentage of open interest – also the highest in
more than two years."
"We recommend that nimble investors take profits on any long gold and
silver positions, looking to re-enter after a correction," agrees UBS
metals analyst John Reade in a note to clients, widely reported on the
"Considering the speed of the increase, and on the absolute level, of
the net speculative position, we are cautious about the near-term outlook for
the Gold Price.
"Customers remain positive about the longer-term prospects...but are
concerned that speculative positions are a little overblown."
Overall in the week to last Tuesday evening, CFTC data show, the total number
of open contracts in US Gold Futures and options leapt by almost one-fifth,
the biggest week-on-week increase since gold broke through $400 an ounce in
the fall of 2005 according to BullionVault analysis.
Bullish contracts held by hedge funds and other speculative, non-industry
traders rose to 92.9% of their total betting on gold, rising well above the
5-year average of 82% but remaining below the all-time peak of Oct. '07.
Back then, Gold began a six-month surge – spurred by the Federal
Reserve slashing US interest rates as the first wave of bank failures
approached – that took it from $720 to $1,032 an ounce.
Over on the other side of the gold derivatives market, meantime, commercial
traders acting for gold industry players last week raised their bearish
betting above three-in-every-four contracts held, just surpassing Oct. '07
and the highest level since Jan. '06.
That month the Gold Price began a 36% jump to the May 2006 spike at $725 an
"Gold is still above its 12-month moving average, and there is not quite
the frenzy of public interest and buying you would expect to see at a
top," notes technical analyst Martin Pring of the eponymous Pring
Research in a note.
"Nevertheless, I am a bit suspicious [of gold's run to $1,000] since the
Dollar isn't breaking down, and usually the Dollar and gold go in opposite
"When a can is placed on a stove burner, the pressure builds up inside
the can," counters Richard Russell, author for the last five decades of
the much-respected Dow Theory Letter. "At some point, we know not exactly when, the can will
explode and the pressure will be released.
"That, I believe, is where Gold is."
Head of Research
by Adrian Ash
for The Daily Reckoning in London, Adrian Ash is head of research at BullionVault.com –
giving you direct access to investment gold, vaulted in Zurich, on $3 spreads
and 0.8% dealing fees.
Please Note: This
article is to inform your thinking, not lead it. Only you can decide the best
place for your money, and any decision you make will put your money at risk.
Information or data included here may have already been overtaken by events
– and must be verified elsewhere – should you choose to act on