Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 30 June 2015 at 10:00 GMT

What's wrong with gold?

Head of Commodity Strategy / Saxo Bank
  • Stock prices fell since Friday while gold is unchanged
  • Since January gold ETP holdings have been reduced 
  • Investments in gold ETP's reached a six-year low earlier this June
  • Overall gold is being held back by the USD impact of an anticipated Fed decision
  • Lower prices will be required in order to attract renewed interest from investors
By Ole Hansen

While gold coins have been selling out across Europe, not least in Greece the price remain stuck within a $1170 to $1190 range. Although not impressive gold has managed to stay unchanged since Friday while other other assets such as stocks (S&P -2%, Nikkei -2.7%, Dax -4.3%) have sold off. 

Which direction will gold be heading? Photo: iStock 

Hedge funds added to their net-long futures position during the week of June 23 but overall the net positioning remains light. Both long and short positions however have been rising during the past month, not least the gross short which currently sits a near record.  

Owners of these bearish bets have not been in any hurry to scale back despite the raised level of uncertainty. This gives an indication of the continued lackluster sentiment towards the yellow metal which has been range-bound for more than six months. 

Speculative positioning in COMEX Gold futures

The lackluster sentiment can also be seen from gold investments through exchange-traded products. During this now long period of sideways trading total holdings jumped in January when the SNB un-pegged its currency from the Euro. Since then however total holdings has been reduced and reached a six-year low earlier this June. 

The pick up in demand from mid-June and onward ran out of steam last week and have since then been reduced despite the heightened uncertainty.

Gold ETP holdings
In the near-term the overall impression of gold is that it remains weak, not least given its inability to react to gold friendly news during these past few days. The uncertainty related to Greece and the risk of a "Grexit" however remains elevated and with the risk of a "Lehman" moment still high the downside seems limited to $1163.

Overall gold is being held back by the continued focus on the US Federal Reserve and the timing of the first US rate hike and the potential positive implications this carries for the dollar. Headwinds like these have seen many leave the metal behind instead focusing on other investments. 

The lack of support seen during these past couple of days raises the risk that beyond the speculation about Greece lower prices will be required in order to attract renewed interest from investors. At this stage however we see the downside potential limited to the above mentioned $1163 ahead of $1151 as per the chart below.

Spot Gold

Source: Saxo Bank. Create your own charts with Saxo Trader click here to learn more

– Edited by Clemens Bomsdorf


Ole Hansen is head of commodity strategy at Saxo Bank


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