The gold market is drafting some initial support from Presidential suggestions over the weekend that China wants a deal much more than the US but also because of unusual workday violence/protests in Hong Kong. Unfortunately for the bull camp the tone of trade talks doesn't appear to be incendiary and it is possible that talks might simply decelerate until closer to the "December" timeframe indicated by both sides as the next potential deal timing.
With a fresh lower low for the move at the end of last week and prices remaining near a downside breakout point today, the gold market remains in a washout mode. Clearly the gold market has failed to benefit from a potential rekindling of economic uncertainty from trade and that partially stems from the fact that overall market sentiment shifted positive following the last US payroll reading but also because of a series of negative gold demand developments.
In addition to a misfire on what was hoped to be a strong kickoff to seasonal Festival demand in India, the Chinese central bank broke a long pattern of monthly purchases with no purchases in the month of October, Chinese imports of gold fell off and the World Gold Council produced a series of negative global jewelry demand statistics last week.
Even gold derivative holdings have begun to show liquidation with the world's largest gold back ETF last week registering a series of outflows. Overall gold ETFs on Friday sold 436,453 ounces of gold reducing this year's net purchases below the 11 million ounces mark. Gold ETF holdings have now declined to the lowest level in over one month. #Silver ETFs also reduced their holdings by 43,963 ounces. Furthermore, on Friday SPDR holdings fell by 1.44%!
Yet another negative for gold and silver going forward is the presence of a newly unfolding uptrend in the #dollar, but it is unclear if the currency impact is exerting noted pressure on prices yet. Unfortunately for the bull camp, the positioning in gold and silver leaves both markets vulnerable to more liquidation.
In the most recent positioning report for gold (as of November 5th) non-commercial and non-reportable combined positioning posted a net long of 341,553 contracts. In our opinion to have a liquidated speculative positioning gold might require a net long down around 260,000 contracts. Certainly, the latest positioning report overstates the level of the net long as prices since the report have declined another $20 per ounce.
In a similar fashion, the latest net spec and fund long in silver posted at 79,402 contracts and we would suggest the market needs a net spec and fund long below 60,000 contracts to suggest the bull froth has been taken out of the market. Like gold, the silver spec long in the COT report clearly overstates the current long as silver since the report into the low last Friday was down $0.95.
While both gold and silver have ventured close to past consolidation lows and should begin to find support, the path of least resistance remains down and prices will continue to track inversely with equities.
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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.
