Article / 11 October 2016 at 13:06 GMT

Gold puts up a fight against rising dollar – #SaxoStrats

Head of Commodity Strategy / Saxo Bank
  • Gold's robustness may signal end of long-liquidation
  • Gold is down against the dollar but up vs the euro
  • Tactical traders such as hedge funds reducing bullish bets
  • Investors using ETPs are once again buying into weakness
  • Headwind from stronger USD will  keep the upside limited
usd gold
 The stronger dollar hurt gold today – but not seriously. Photo: iStock

By Ole Hansen

The dollar reached an 11-week high  against a basket of currencies today as the focus returns to higher Fed funds and rising bond yields. Gold has held up relatively well against this onslaught which could be a sign that fund long-liquidation has begun to fade. 

Gold drivers

While being down against the dollar gold is actually trading higher today against the euro as the inverse correlation has faded somewhat. Funds were heavy sellers on the break below $1,300/oz last week, so much that the net-long in the week to last Tuesday, the day of the initial selloff, dropped by 22% to 205,000 lots. Still one-third above the low point reached during the May correction some additional selling has been seen since with the aggregate open interest in Comex gold futures falling to the lowest in four months. 

So far we have seen a repeat of the May correction with tactical traders such as hedge funds reducing bullish bets while investors using exchange traded products once again buying into the weakness. Since the break below $1,300/oz. total holdings in ETPs have risen by 13 tonnes to 2,046.4 tons, the highest in more than three years. 

Gold investments through futures and ETP
The selling pressure may have subsided for now but the headwind from a stronger dollar will continue to keep the upside limited. Support at $1,250/oz was briefly broken last week and a close below may signal additional weakness towards the May correction low at $1,200/oz.

Spot gold with retracement levels
 Source: Saxo Bank

– Edited by Clare MacCarthy

Ole Hansen is head of commodity strategy at Saxo Bank


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