Gold News

Gold Stuck, "No Trend" as Post-Summer Forecast of $1,033 Battles "Excessive" Hedge Fund Positions

The price of Gold ticked higher overnight in Asia and early Tuesday in London, unwinding half of yesterday's 1.5% drop as the US Dollar fell together with world stock markets.

Crude oil retreated from Monday's new 2009 highs. Government bond prices rose, pushing 10-year German Bund yields down to 3.29%.

"Large selling on the [US Gold Futures] electronic market helped break through stops" says Swiss refinery group MKS of yesterday's $14 drop, noting that "the market is currently illiquid."

"We do not foresee anything that should push gold out of its recent narrowing range [of] 925.90 to 971.68," says London market-maker Scotia Mocatta.

"Technical studies are generally neutral...There is no clear trend."

Looking at previous dull summers in the gold market, "This is likely a repeat of Aug. 2005 and Aug. 2007 when the market broke significantly higher in September," says a report from Barclays' analysts in New York, quoted by Bloomberg.

Five other finance houses agree that Gold Bullion will trade above $1,000 an ounce between Oct. and the end of the year.

"We are looking for a breakout above $1,033 next month," adds Barclays – with gold breaking through the current all-time Dollar record, set when Bear Stearns collapsed in March 2008.

But "Gold, to us, has already drawn in the bulk of those players who want exposure to the yellow metal," cautions Edel Tully at London dealers Mitsui.

"The investor pool is not infinite [and] net long positioning in the [futures] market remains excessive. The Gold ETF players acted as net buyers last week, but by quantities that fail to ignite much excitement.

"This grouping has very limited interest in adding to their already extensive long position."

Global gold ETF holdings rose one tonne last week from a five-month low of 1,250 tonnes. Speculative players in US Gold Futures and options cut their bullish bets, meantime. But as a group, they continued to hold almost nine up-bets for every short contract they held on the metal.

The five-year average for hedge funds and other large speculators is nearer four bullish contracts for each bearish bet on gold.

"Gold is very much still in a sideways consolidation pattern between $920-$980," reckons Adrian Koh at Phillip Futures in Singapore, speaking to Reuters this morning.

"The Dollar's still the main driver behind gold's movement."

Early Tuesday the Dollar slipped back to $1.4330 per Euro, and fell beneath ¥94 against the Japanese currency – a 13-year low when first reached in late 2008.

The Dollar held steady against the ailing Pound Sterling, however, which sank to a 12-week low against the Euro on news of much weaker-than-expected UK credit data.

The British Bankers' Association said net mortgage lending grew by just £1.6 billion ($2.6bn) in July, the smallest month-on-month increase this decade.

Lending to non-financial firms fell £4.1bn ($6.7bn), the fastest drop since 2006.

The Gold Price in British Pounds rose as Sterling, touching £579.50 an ounce and erasing all of Monday's 1.1% loss.

In the United States, meantime, president Barack Obama was set to revise his public deficit forecast to an average $800 billion each year until 2019, adding $2 trillion to the additional $7trn forecast in Feb.

That will take the Treasury's outstanding debt to 82% of the annual US economy, analysts said, matching levels last seen during WWII.

President Obama will also offer US Federal Reserve chief Ben Bernanke a second term as central-bank chief today, according to sources.

Dr. Bernanke – who has taken "extraordinarily aggressive efforts to fight the economic crisis" in the words of the Financial Times, slashing interest rates to zero and injecting $2trn into the financial system – is "probably the right choice" says head of the Senate banking committee, Chris Dodd.

"[But] what Bernanke's supporters happily gloss over is the policy role that he played in both the run-up to and in the deepening of the country's worst economic recession," says former IMF deputy director and current research fellow at the American Enterprise Institute Desmond Lachlan.

"It would also validate the skeptical worldview...that, in Washington, nothing succeeds so well as failure."

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Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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