Gold and silver are set to be less sensitive to dollar appreciation

Speculative length for metals and crude oil increased last week. Despite this increase, speculative length remains well below that of the past few months. Gold has seen net speculative length on COMEX rise from 29.8% of open interest (OI) to 31.7% — still well below the 42% of OI seen in Sep 2009. The net speculative long position now stands at 622 tonnes — 300 tonnes lower than the highs reached in October 2009.

For silver, the picture is similar — speculative length is only marginally higher, at 17.3% of OI (16.1% the previous week). For gold and silver, the relatively low level of speculative interest
indicates that both metals are set to be less sensitive to dollar appreciation than dollar depreciation. We expect more strength in the dollar in the next few weeks (initial target at $1.30 against the euro). Because speculative length is low and we expect more dollar strength, I still favour gold and silver in Malaysia. Likely would look for a large rally in gold and silver ( in dollar terms) once the dollar starts to depreciate again.

WTI crude saw speculative interest rise from 3.2% of OI to 5.3% last week. The speculative length in WTI does not look overextended yet, but we may be getting closer to this level. Speculative length reached 10.4% of OI in January before prices declined from $84 to $70. Average speculative length as a percent of OI over the past 12 months was 3.7%.

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