While gold prices were knocked backward by a slightly better than expected US nonfarm payroll result, we would suggest they did not fall as hard as might have been expected if the market was indeed vulnerable to significant selling ahead. In fact, the recovery bounce back above $1,500 late last week combined with a slight increase in open interest on the recovery, suggests the market has value just under current price levels.

On a positive note, Chinese gold reserves in the most recent report came in at 62.64 million ounces versus the prior holding level of only 62.45 million ounces and that shows the Chinese are still in an accumulation mode. According to some estimates central banks in the first six months of 2019 added 374.1 tons to their reserves which in turn put central bank gold demand at a three year high.

It should be noted that gold ETF saw their holdings increase for the 15th straight session at the end of last week putting those holdings at the highest levels since October 8th of 2018. Silver ETF's also increased their holdings by 134,040 ounces bringing this year's annual purchase tally up to 104.9 million ounces.

Unfortunately, that positive news is offset by a significant year-over-year decline in September Indian gold imports which fell from 81.1 tonnes to 26.4 tonnes. On the other hand, strong seasonal buying should pick up in the fourth quarter due to typical festival buying but many concede to the fact that historically high prices will discourage some demand.

In going forward, the trend has been for softening global economic data and that trend should favor the bull camp. However, there is higher level trade talks resuming this week and even a partial deal would result in a fresh selling of gold and trade action below $1500.

The Commitments of Traders report for the week ending October 1st showed Gold Managed Money traders are net long 235,174 contracts after net selling 56,892 contracts. Non-Commercial & Non-Reportable traders are net long 337,429 contracts after net selling 54,575 contracts. In order to see a balanced net spec and fund long positioning, gold probably requires a net long below 300,000 contracts.

The October 1st Commitments of Traders report showed Silver Managed Money traders net long 45,264 contracts after net selling 5,370 contracts. Non-Commercial & Non-Reportable traders reduced their net long position by 8,025 contracts to a net long 77,344 contracts. In order to see a balanced net spec and fund long positioning in silver probably requires a net long positioning below 70,000 contracts.

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Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Financial Services LLC, unless otherwise expressly noted.