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Gold Investors Slash Futures Position to 11-Month Low

Commodities / Gold and Silver 2011 Jan 24, 2011 - 11:34 AM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleThe PRICE OF GOLD cut early gains vs. the Dollar in London on Monday morning, easing back towards Friday's 13-week closing low at $1343 per ounce as global stock markets held flat overall.

The US currency edged lower on the forex market, while crude oil and other commodity prices ticked higher, but the silver price fell back towards Friday's new 6-week low at $27.20 per ounce.


US government bonds slipped in price, nudging interest rates higher, as the Treasury prepared to sell $99 billion in new short-term debt this week.

"Should [Wednesday's] US Fed rate-decision or the [accompanying] discourse surprise the market by any means, we would expect a great reaction from the Dollar and consequently from the yellow metal," says Swiss refiner MKS's finance division in a note.

"While we think that a change in [US] policy is highly unlikely at this time, investor worries could see a pull-back in precious metals, especially gold," agrees James Zhang at Standard Bank.

But "we advocate buying dips off the back of positive US data flow," concludes Zhang, because – as his colleague Steve Barrow, Standard Bank's chief currency strategist, says – "Surging food prices, alongside high energy prices – and other commodities – are a function of excess global liquidity, [not] a function of demand.

"The world economy is still pretty sluggish, especially in developed economies."

Monday morning brought data showing German industrial output flagging last month. Latest UK and US economic growth figures are due Tuesday and Friday respectively, with Australian, Canadian and German consumer-price inflation in between.

Eurozone citizens looking to make a gold investment on Monday morning briefly saw the metal rise to €32,000 per kilo before slipping back.

Priced in Sterling, gold reversed all of Friday's 1% drop, bouncing from two-month lows beneath £840 an ounce.

"[Friday's finish] below $1354 is a bearish development" for gold investment, says Russell Browne in his technical analysis for Scotia Mocatta, "suggesting the metal should trade down to October's low $1315.

"The overall pattern has formed into a large head and shoulders reversal."

"Gold continues to form a long consolidation pattern which has lasted basically for the final quarter of 2010," says Phil Smith in his chart analysis for Reuters' clients.

"[On] the possible topping [head-and-shoulders] pattern I've been looking at...we have now broken the neckline. Watch for a decisive break below this line. The target for this topping pattern is $1230."

"From a technical standpoint, we've a strong rally in silver and gold, and when you have that type of performance, it prompts profit-taking," Bloomberg today quotes Brian Hicks, co-manager of the $1bn Global Resources Fund at US Global Investors.

Gold prices are now "close to a short-term oversold area," Hicks reckons, and "we're starting to become interested at these levels. The perfect storm is continuing to build for precious metals."

Latest data say that the "net long" position of bullish minus bearish contracts held by Speculative players in US gold futures and options last week slumped to an 11-month low, equivalent to 727 tonnes, according to data from commodity watchdog the CFTC.

On the other side of the trade, the Commercial category of gold-industry traders meantime slashed their "net short" position to 726 tonnes – the smallest level since March 2010, when gold was trading more than $250 lower per ounce at $1100.

Falling hard since the New Year began, gold bullion holdings at the SPDR Gold Trust – the world's largest gold ETF – jumped 20 tonnes on Friday, reversing the previous two weeks' redemptions.

The iShares SLV Silver Trust Fund, in contrast, extended this month's sharp declines, losing more than 9% of its silver bullion holdings from the start of the previous week.

Ahead of next month's Chinese New Year – a traditionally strong period for private household gold buying in the world's No.2 consumer – this week sees the traditional South Indian harvest festival of Pongal, reports the Financial Times' Fund Management supplement.

"The festival, in which ethnic Tamils thank the sun deity for casting his golden rays onto their rice fields...will provide an early indication of whether 2011 will be another record year for India's nascent exchange-trade gold fund business, which reported rapid growth in the final months of last year," says FTfm.

India's gold ETF grew their gold holdings almost three-fold in 2010 to the equivalent of $770 million, says data from the Association of Mutual Funds in India.

"The rates displayed on commodity exchanges are for large lot sizes...whereas the price of physical bars is far higher on the street," says Vijay L Bhambwani – CEO of  investment advisory BSPLindia.com – urging the development of silver ETFs in today's Economic Times of India.

"Depending on whether you are a walk-in buyer or a regular investor, your silversmith can quote an exorbitant price as 'making charges' or coinage on the physical silver that you buy. The difference in the buying and selling prices quoted by the silversmith means that an investor will not be able to maximise his profits."

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

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 it.


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