Gold short positions hit new record

Short sellers in the futures market extended their position for the sixth consecutive week last week pushing the overall short position to a record 14.6m oz.

But, while the move is indicative of a continued bearish attitude by traders toward the yellow metal, analysts say it could be a good thing for gold.

According to UBS, while there remain no anticipated shifts at a macro level that would improve sentiment, ” The fact that gold shorts are sitting at all-time highs would make aggressive attempts to the downside relatively more difficult. At the same time, this means that an upside catalyst would likely obtain a more significant reaction as recent shorts get squeezed.”

But it says, ” The difficulty gold has faced thus far to break above the psychological $1400 mark suggests that many are still looking to sell rallies and it would have to take a much more convincing move to get the shorts significantly worried.”

That said, there are some encouraging signs for the metal, primarily the support offered by physical buyers.

As UBS says, “Headlines this week reveal continued appetite from central banks in April… Buying from these central banks highlights the trend for increasing gold reserves, especially among EM central banks, which we expect to remain in place this year. While news of central bank buying does not have an impact on price, it does help overall sentiment on the margins.”

Meanwhile, the bank says, physical demand lingers, “albeit at a less frantic degree than what was observed in the few weeks that immediately followed the sharp correction in April.”

Standard Bank also remains positive over the long term saying “Even taking a slowing of Fed quantitative easing into account, we still feel that fundamentals remain supportive—global liquidity should continue to grow, although maybe at a slower pace, and real long-term interest rates look set to remain low. Nevertheless, we cannot ignore investor apathy towards the metal and acknowledge that it will take some doing to restore confidence. Consequently, while we do still foresee upside, such gains will most likely be hard won. The first challenge will be to push past the $1,400/oz hurdle.”

Source: http://www.mineweb.com/mineweb/content/en/mineweb-gold-news?oid=191937&sn=Detail

World Central Banks Buying Gold

Today is a national holiday in the United Kingdom and the USA.
Friday’s AM fix was USD 1,385.25, EUR 1,068.95 and GBP 917.81 per ounce.

Gold climbed $5 on Friday and closed at $1,390.25/oz in London and silver closed at 22.482 in NY.

Gold rose 0.45% this morning in quiet European trading with UK and U.S. markets closed for holidays. Silver, platinum and palladium also advanced this morning.

Gold’s gains come on the back of the best week in a month last week when gold rose 2%.

Gold is being supported by continued diversification from central banks and signs of increased physical demand which is countering continued outflows in ETF holdings.

Gold Price (Nominal) and Central Bank Net Buying/ Selling (1971-2013)

Russia,Turkey, Kazakhstan and Azerbaijan expanded their gold reserves for a seventh straight month in April, buying bullion to diversify foreign exchange reserves due to concerns about the dollar and the euro.

Russia’s steady increase in its gold reserves saw its holdings, the seventh-largest by country, climb another 8.4 metric tons to 990 tons, taking gains this year to 3.4% after expanding by 8.5% in 2012, International Monetary Fund data show.

Kazakhstan’s reserves grew 2.6 tons to 125.5 tons, taking the increase to 8.9% this year after a 41% expansion in 2012, data on the website showed.

Turkey’s holdings rose 18.2 tons to 427.1 tons in April, increasing for a 10th month as it accepted gold in its reserve requirements from commercial banks.

Belarus’s holdings expanded for a seventh month as did Azerbaijan’s.

Interestingly, Greece’s gold holdings climbed for a fourth month, according to the IMF data.

This could be a sign of rising economic nationalism in Greece or that the Greek central bank realises that if Greece leaves the euro and is forced back onto the drachma that gold reserves will offer a modicum of protection. Only a modicum, because Greece’s gold reserves remain miniscule especially considering the scale of their debts.

IMF Greece Gold Reserves, in Mill Fin Troy Oz, (Quarterly 01Jan1956-27May2013)

Central banks are buying gold as an overall strategy of forex portfolio diversification and the recent price drop will not deter them from a long term policy of diversification into gold.

Central bank reserve managers are conservative rather than speculative and will ignore the day to day noise and price predictions emanating from certain banks in favour of passive allocations to gold as part of their foreign exchange diversification strategy.

IMF World Gold Reserves, in Mill Fin Troy Oz, (Monthly 31Mar2007-31Mar2013)

While not driven by price, some central banks may have made the most of the lower prices by increasing their holdings by more than they would have if prices had risen in value.

The long term trend for central banks to increase gold reserves remains intact and will support gold.

Central banks bought 534.6 tons of gold last year, the most since 1964, and may add as much as 550 tons in 2013, the World Gold Council estimates. While central-bank purchases fell 5.2 percent in the three months through March, they totaled more than 100 tons for the seventh straight quarter, according to council data.

IMF China Gold Reserves, in Mill Fin Troy Oz (Quarterly 01Jan1977-27May2013)

China’s foreign currency reserves have surged more than 700% since 2004 and are now enough to buy every central bank’s official gold supply – twice.

China’s foreign reserves surpassed the value of all official bullion holdings in January 2004 and rose to $3.3 trillion at the end of 2012 and are at $3.4 trillion today.

The price of gold has failed to keep pace with the surge in the value of Chinese and global foreign exchange holdings. Gold has increased just 54% in the last 5 years and 250% since 2004, with the registered volume little changed, according to data based on International Monetary Fund and World Gold Council figures.

China’s Foreign Exchange Reserves vs Gold Monthly (2004-2013)

By comparison, China’s reserves rose 721% from 2004 through 2012, while the combined total among Brazil, Russia and India rose about 400% to $1.1 trillion.

Continuing diversification into gold from the huge foreign exchange reserves by the People’s Bank of China and other central banks is a primary pillar which will support gold and should contribute to higher prices in the coming years.

We are confident that the PBOC is quietly accumulating gold and we expect another announcement from the PBOC, possibly this year, when they again disclose to the market that they drastically increased their gold reserves – possibly from 1,054 tonnes to between 2,000 and 3,000 tonnes.

Source: http://www.marketoracle.co.uk/Article40627.html

Post-Close Algo Acrobatics Send Gold Sliding, Spiking

Precious metals and their related mining stocks continue to underperform the broad market. This year’s heavy volume breakdown below key support has many investors and trader’s spooked creating to a steady stream of selling pressure for gold and silver bullion and mining stocks.

While the technical charts are telling me prices are trying to bottom we must be willing to wait for price to provide low risk entry points before getting involved. Precious metals are like any other investment in respect to trading and investing in them. There are times when you should be long, times to be in cash and times to be short (benefit from falling prices). Right now and for the last twelve months when looking at precious metals cash has been king.

Since 2011 when gold and silver started to correct the best position has been to move to cash or to sell/write options until the next trend resumes. This is something I have been doing with my trading partner who focuses solely on Options Trading who closed three winning positions last week for big gains.

In 2008 we had a similar breakdown in price washing the market clean of investors who were long precious metals. If you compare the last two breakdowns they look very similar. If price holds true then we will see higher prices unfold at the end of 2013.

The key here is for the price to move and hold above the major resistance line. A breakout would trigger a rally in gold to $2600 – $3500 per ounce. With that being said gold and silver may be starting a bear market. Depending what the price does when the major resistance zone is touched, my outlook may change from bullish to bearish. Remember, no one can predict the market with 100% accuracy and each day, week and month that passes changes the outlook going forward.

The chart below is on I drew up on May 3rd. I was going to get a fresh chart and put my analysis on it but to be honest my price forecast/analysis has been spot on thus far and there is no need to update.

Gold Daily Technical Chart Showing Bottoming Process:

Major technical damage has been done to the chart of gold. Gold is trying to put in a bottom but still needs more time. I feel gold will make a new low in the coming month then bottom as drawn on the chart below.

Silver Daily Technical Chart Showing Bottoming Process:

Silver is in a similar as gold. The major difference between gold and silver is that silver dropped 10% early one morning this month which had very light volume. The fact that silver hit my $20 per ounce level and it was on light volume has me thinking silver has now bottomed.

But, silver may flounder at these prices or near the recent lows until its big sister (gold) puts in a bottom.

Gold Mining Stocks Monthly Investing Zone Chart:

Gold mining stocks broke down a couple months ago and continue to sell off on strong volume. If precious metals continue to move lower then mining stocks will continue their journey lower.

This updated chart which I originally drew in February warning of a breakdown below the green support trend lines would signal a collapse in stock prices, which is exactly what has/is taking place. While I do not try to pick bottoms (catch falling knives) I do like to watch for them so I am prepared for new positions when the time and chart turn bullish or provide a low risk probing entry point.

While I focus more on analysis, forecasts and ETF trading another one of my trading partners who focuses on Trading Stocks and 3x Leveraged ETF’s has been cleaning up with gold miners.

Source: http://www.marketoracle.co.uk/Article40628.html