Gold has enjoyed some support from continued troubles in the Eurozone

Gold has enjoyed some support from continued troubles in the Eurozone. Although it appears as if Greece is making some progress on the political front, details remain sketchy and markets are shifting their attention to Italy. The Italian Prime Minister has been urged to step down as Italy’s borrowing costs soared to new Euro-era records as investors feared spill-over effects
from the Eurozone’s ongoing debt crisis. While gold might be enjoying some safe-haven buying, we warn that should the Eurozone debt crisis result in a drying-up of the region’s money markets, all commodities will suffer, including gold.

Physical buying in gold remains light with the Middle East on holiday in observance of Eid.
Net speculative length for COMEX gold increased moderately again this past week, with 31.2 tonnes added. However, unlike in the previous week, the change in the net position was largely due to speculative shorts being unwound (20.2 tonnes), with a more modest increase in speculative longs (11.1 tonnes) adding to the overall improvement. With two weeks of improvement in the net position, coupled with a drawing down of short positions, the speculative market finally seems more confident about gold’s prospects.

ETF buying continues to gain momentum, with 16.8 tonnes added this past week (compared to the 12.2 tonnes and 4.7 tonnes added in the previous two weeks). These increases are encouraging, and underscores the growing confidence in the gold market. COMEX silver net speculative length continued to climb, with 239.2 tonnes added over the past week. However, there is still a long way to go to recover from the 3,060.0 tonnes lost previously, so net speculative length still looks relatively weak. Encouragingly, for the most part, the increase in the net position was attributable to 177.3 tonnes shed from speculative short positions.
This brings speculative shorts to a total of 1,074.6 tonnes — now more comfortably in line with last year’s average. The 61.9 tonnes added to speculative longs also contributed to the overall improvement. Market positioning remains weak, yet there are signs that investors have become less bearish on silver.

Gold support is at $1,756 and $1,744. Resistance is $1,774 and $1,779.