11 October 2016 at 13:06 GMT
- 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
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.
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.
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.
– Edited by Clare MacCarthy
Ole Hansen is head of commodity strategy at Saxo Bank