Gold pointing higher, but watch for short-term risks
Source: Saxo Bank , Author: Posted by BI-ME staff
Posted: Thu August 10, 2017 11:09 am

INTERNATIONAL. Gold has so far responded well to last Friday's stronger-than-expected US nonfarm payrolls report. Following a renewed surge in speculative buying, it forced some profit-taking but so far key the retracement support at $1,247/oz has yet to be challenged. 

Overall the market remains supported from investors looking for diversification and a hedge against risks such as a stock market correction, North Korea, Trump uncertainty, and potential announcements at the Fed's annual economic Symposium at Jackson Hole on August 24-26. 

A recovery in the dollar, potentially driven by a strong inflation print this Friday, currently provides the biggest downside risk. 

Despite the stronger jobs report, US real yields have stayed relative calm while the recent strength in the euro has also led to some (albeit smaller) JPY appreciation.

Investors trading gold through exchange-traded products have been continuous sellers during the past month. This despite the firm rejection below $1,215/oz on July 7 and the subsequent rally.

Hedge funds have, as usual, provided most of the ammunition when it comes to market volatility. The most recent failed selling cycle took the net-long position in futures and options down to just 2.9 million ounces, an 18-month low; a record 9.4 million ounces were bought in the two weeks up until August 1.

Positioning remains relatively light with the current net-long of 12.3 million ounces (123,000 lots) being below the 17.5 million seen during the most recent attempt to break above $1,295/oz and some 43% below the record from June 2016. 

In the short term, the rapid buildup in bullish bets has left gold exposed to some additional profit-taking. Support, however, is likely to emerge between $1,254/oz and $1,248/oz with the latter being the 38.2% retracement of the rally from the July low. 

At this stage it would take a break below $1,230/oz (61.8% and 200 day moving average) to return sentiment to negative.

Silver, meanwhile, has struggled to keep up with gold's recent gains as it struggles to attract demand from investors looking for diversification. With silver failing to gain some momentum, the gold/silver ratio has climbed to 77.5 ounces of silver to one ounce of gold.

Hedge fund positioning remains light at 23,000 lots, some 23% of the record recorded back in April. ETP holdings, meanwhile, have seen outflows of 330 tons after reaching a record 21,200 tons some three weeks ago.

By Ole Hansen, Head of Commodity Strategy / Saxo Bank (File photo)

This post, complete with graphs, originally appeared on Saxo Bank's financial community portal TradingFloor.com.

About Saxo Bank
Saxo Bank Group (Saxo) is a leading multi-asset trading and investment specialist, offering a complete set of trading and investment technologies, tools and strategies.

For almost 25 years, Saxo’s mission has been to enable individuals and institutions by facilitating their access to professional trading and investing through technology and expertise.

As a fully licensed and regulated bank, Saxo enables its private clients to trade multiple asset classes across global financial markets from one single margin account and across multiple devices. Additionally, Saxo provides institutional clients such as banks and brokers with multi-asset execution, prime brokerage services and trading technology.

Saxo’s award winning trading platforms are available in more than 20 languages and form the technology backbone of more than 100 financial institutions worldwide.

Founded in 1992 and headquartered in Copenhagen, Saxo employs more than 1500 people in financial centres around the world including London, Singapore, Paris, Zurich, Dubai and Tokyo.

 

 

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