Gold open interest stood at 1,579 tonnes on COMEX

The decline in open interest appears to be gaining momentum, having shed 61.9 tonnes over the past week. As of last

• Friday, gold open interest stood at 1,579 tonnes on COMEX, still well below last year’s average of 1,787 tonnes, and closing in on the 1,481.9 tonne low for the year. Accompanying the fall in open interest was a 1.0% w/w slide in prices.
• Net speculative length fell sharply, at 142.2 tonnes lost over the week. The net speculative position for gold now stands at 625.5 tonnes — now well below last year’s average of 777.6 tonnes. This decrease was due to a drop of 145.4 tonnes in speculative longs, with a modest decrease of 3.2 tonnes in speculative shorts providing limited relief. Although the sharp fall in net speculative length underscores the susceptibility of gold to speculative sell-offs, we still feel that, from a fundamental perspective, there is potential for further upside over the medium term. We would, however, caution that over the short term, given that speculative short positions are currently at 123.1 tonnes, well above last year’s average (90.7 tonnes), sentiment is less supportive — which could see the gold market more volatile than usual.
• Although ETF holdings of gold have come off, it was only modest, at only 0.3 tonnes lost. We therefore still believe that investor interest in gold has not completely evaporated.
• Net speculative length as a percentage of open interest has dropped off sharply. Currently it stands at 27.6%, which is well below the 31% average seen during 2010. This indicates a market that is not at all overextended.