Gold has seen its net speculative length


Gold has seen its net speculative length on COMEX decline to 29.8% of open interest — the lowest level since April 2009. The net speculative long position is now at 606 tonnes. This is down from 300 tonnes lower than the highs reached in October last year. At the same time, gold ETF holdings have declined from record levels of just above 1,800 tonnes in December to 1,780
tonnes last week — despite the large decline in speculative length, a stronger dollar and lower ETF holdings, a gold price only $100 below its record levels of early December might be
surprising.

However, we have seen very good physical demand for gold leading up to the Chinese New Year. Recently, strong demand from China (and Asia) has supported gold under adverse conditions. However, with China on holiday for the next two weeks, there could be less physical demand for gold. While timing is always difficult, should physical demand dry up, gold could be set for a further downward correction in the next two to four weeks.

Therefore, we would sell into gold rallies. Towards Q2, we would view a decline in speculative length as upside potential for gold. However, we will wait for the risk aversion (fuelled by Greece’s troubles) to subside before we would buy the dips.

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