2011-03-29

An encouraging sign that investors are less bearish on gold

Last week saw open interest begin to climb after having reached the lowest point for March in the previous week. As of last Friday, gold open interest stood at 1,622 tonnes on COMEX, from 1,609 tonnes the previous Friday. Accompanying this rise in open interest was a modest 0.8% w/w rise in the gold price.

Net speculative length also signalled tentative interest in gold, as it too rose from March’s low of the previous week. Rising 15.8 tonnes over the past week, the net speculative position for gold now stands at 676.9 tonnes. The rise was largely due to a removal of 35.5 tonnes in speculative shorts, even though at the same time, speculative longs fell by 19.7 tonnes. Although the increase was modest, it is an encouraging sign that investors are less bearish on gold. Should safe-haven demand remain intact, we could see gold recover from the liquidations seen in the immediate aftermath of the earthquake in Japan.

Speculative shorts, currently at 111.2 tonnes, are within touching distance of this year’s low (recorded in early January) of 103.6 tonnes. Should risk aversion continue to dominate markets (political unrest in the MENA region and debt concerns in the Eurozone), these short positions could fall further. The rise in open interest was more than offset by the increase in net speculative length, pushing the ratio of the two marginally higher, to 28.4% (from 28%). This is still largely in line with the 31% average seen during 2010. Although ETF holdings shed 0.5 tonnes, this is a fairly modest decline and should not cause alarm.

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