Cautious of gold’s near-term prospects

Gold are benefiting from a weaker dollar, as the euro advanced after the Greek parliament approved the requisite austerity measures over the weekend. However, market optimism might be premature as two conditions still have to be met before the Eurozone leaders’ meeting this Wednesday. Firstly, a further €325m in cuts have to be found, and secondly, a pledge from Greek political leaders that they will maintain the reforms after the country’s general elections (this April).

Turning to CFTC data, net speculative length for COMEX gold grew again, although not with as much gusto as in the previous week. Similar to the previous week, the change in the net position was largely the result of speculative longs being added (37.4 tonnes). However, we saw a resumption in short positioning (the first time in four weeks), with 13.3 tonnes added. The tentative nature of the past week’s moves affirms our suspicion that the aggressive moves of the week before last were largely as a result of overexcitement after the Fed’s dovish announcement. Consequently, we are cautious of gold’s near-term prospects, and would not be surprised to see further weakness emerge this week. ETF buying also slowed markedly.

For COMEX silver, net speculative length continued its dramatic improvement of the past six weeks, with 823.4 tonnes added— the largest gain since August 2011. Participants showed increasing interest with an incredible 730.0 tonnes added to long  positions — the largest gain of the year so far. Futures market positioning is currently the strongest it has been since the dramatic fall in late September last year. If we see a continued strengthening of investment demand, this could help prices shrug off some of the negativity associated with a weak outlook for industrial demand. ETF buying also continues to firm up, with
121.0 tonnes added to holdings this past week.

Gold support is at $1,711 and $1,693. Resistance is $1,741 and $1,753.