2012-05-15

ETF have turned net buyers of Gold

Net speculative length for COMEX gold dropped dramatically, surrendering 84.9 tonnes this past week. The change in the net position was largely the result of speculative shorts being added (51.3 tonnes, the strongest increase of the last 12 months), with the 33.6 tonnes unwound from longs also contributing significantly to the overall deterioration. Net speculative length (at 388.9 tonnes) appears decidedly weak compared to historical norms (the 5-year average is 611.7 tonnes), signalling a continued lack of confidence. What is more disconcerting is that while investors have over the past few weeks appeared cautious of running too short on gold, this fear seems to have evaporated.

ETFs, however, have turned net buyers, for the first time in four weeks, with 2.0 tonnes of gold bought over the past week. The mild increase is hardly an indication of investor confidence — ETFs have not completely shrugged off their bearish view on gold. Despite current investor positioning, we believe that, from a fundamental perspective, getting bearish on gold at current levels (c.$1,560) would be wrong and too late. In fact, we believe that from a risk/return perspective, gold should be bought, not
sold, on dips lower than this.

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