Article / 29 October 2015 at 15:15 GMT

Gold bulls retreat as rate-hike focus returns

Head of Commodity Strategy / Saxo Bank
Denmark
  • Gold slides more than $30/oz in FOMC-statement slipstream
  • Break below key level at $1,148/oz could signal sentiment reversal 
  • Silver also slides as correlation to gold comes into play
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 Gold lost that lovin' feeling after a plus $30/oz, Fed-inspired slide. Photo: iStock

By Ole Hansen

The Federal Open Market Committee wrong footed precious metals traders yesterday after the Fed revived the possibility of a December rate hike. The yellow metal sank by more than $30/oz and in the process made what from a technical perspective looks like an ugly bar on the charts. 

Elevated longs in both gold and silver is now presenting a challenging environment but so far today, both metals have managed to handle this. Nevertheless, as we move deeper into the US session, some important technical levels are being tested. 

Since hitting a record net-short position back in July, the past couple of months has seen a major change in sentiment from hedge funds. During the past four weeks alone the net-long position in gold has tripled from 40,000 lots to 122,000 on October 20.

Speculative positioning in COMEX Gold futures




















After breaking below $1,158/oz yesterday, the price of gold has so far managed to stay above the next level of support at $1,148/oz. 

Failure to hold this level would attract some additional long liquidation as a break below $1,140/oz could signal a reversal of sentiment. 
Spot gold with retracement levels



Although the fundamental outlook for silver heading towards 2016 looks better than gold it is nevertheless still a high beta gold and when gold moves silver tend to react even more. 

That is what we are seeing today, not least again due to speculative traders who have accumulated a net-long futures position of 45,000 lots. 

Speculative positioning in COMEX Silver futures
 
Since speculative data on silver began being collected back in 2006 we have only a speculative length of this magnitude on five previous occasions and they all triggered a sharp reversal in long positioning. 

A break below $15.65/oz would therefore carry the risk of additional long liquidation, not least, considering that close to 20,000 lots of net-longs has been established above this level since the beginning of October. 

 Source: SaxoTraderGO

— Edited by Martin O'Rourke

Ole Hansen is head of commodities strategy at Saxo Bank
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