Gold Prices Slip as Deflation Spreads, Speculative Traders Slash Bullish Position at Fastest Pace Since 2001
Monday, 11/10/2014 13:50
GOLD PRICES dropped a quarter of Friday's late $46 per ounce surge in London trade Monday morning, holding at $1167 as European stock markets ticked higher with commodities and government bond prices.
New data from China said consumer prices in the world's second-largest economy were dead-flat in October from September, defying analyst forecasts of a rise by slipping 2.2% from a year earlier.
Consumer prices in Greece recorded their 19th consecutive month of year-on-year deflation.
Silver tracked gold prices lower, slipping 0.9% after recording their lowest weekly close in Dollar terms since February 2010.
"With commodity prices worldwide in a general decline," writes US futures trader Dan Norcini
on his blog, "[and] central banks worried about deflation with stocks being the only game in town in a near zero interest rate environment, gold and silver have fallen out of favor with large speculative interests who get paid by generating return on capital invested."
Latest data on
trader positioning from US regulator the CFTC showed Friday that so-called "large speculators" slashed their net bullish betting on gold futures and options at
the fastest pace in more than 10 years in the week-ending last Tuesday.
Including the "non-reportable" positions of smaller traders – now net bearish on gold futures and options for 6 weeks running, the longest stretch since at least 1995 – the net speculative position shrank 47% in size, the fastest drop since December 2001.
"The 20% increase in [speculative] short futures positioning," says Japanese conglomerate Mitsubishi's analyst Jonathan Butler, "now the highest since July 2013 and 87% of the all-time high, sets gold up for a potentially large covering rally in the short term."
"Although there is scope for further bearish positioning," reckons a note from London market-maker Barclays, "much of the positioning
has now taken place, which may ease the downward pressure on prices in the near term.
"More downside risk is likely to stem from long liquidation of stale positions."
Physical gold bullion again exited the giant SPDR Gold Trust (NYSEArca:GLD) last week, as the volume needed to back the ETF's shares shrank almost 2% to new 6-year lows at 727 tonnes – down by almost one-half from the record of end-2012.
New data from world No.1 gold consumer nation China meantime said at the weekend that its trade surplus rose near August's all-time record in October, as exports leapt but imports grew more slowly.
Two months after the Shanghai Gold Exchange opened an "international" bourse now averaging less than 3% of the daily turnover in domestic gold contracts, Beijing said today that a delayed link between the Hong Kong and Shanghai stock markets will open next week, enabling almost $4 billion per day in cross-border flows.
Shanghai's stock market today rose 2.3%, while shares in Hong Kong Exchanges & Clearing Ltd (HKG:0388) – which also owns base-metal market the London Metal Exchange – rose 4.6% after the news.
Trading volume in Shanghai's main gold contract jumped near last week's 16-month high at more than $3.2 billion, as prices rose 2.6% in Yuan terms to close near the strongest premium over London quotes so far this month at $2.60 per ounce.
"Any surprise upside catalyst or increase in physical demand," says a note from analysts at Swiss bank UBS, "is likely to result in a more sizeable move" in the Dollar gold price.
Keeping its 3-month target at $1200 per ounce, the bank's 1-month gold price forecast is now $1180 per ounce, down from $1250 previously but "reflect[ing] a recovery from [the current] overdone move to the downside."
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