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Gold Prices May Continue To Soften

Gold Prices May Continue To Soften

Gold in real danger of more long liquidation before end of year, says Emirates NBD.

Gold was down $36 from last week to $1715. Gold gave up all the gains from last week
and fell back into the range of $1700 to $1738. There have been various attempts to
explain what happened last Wednesday, the moment Comex opened, and I do want to
give you my take on that event. I think this was an extremely well executed ploy in a
market what looked already heavy for two days. The key was to sell the December contracts
quickly and in an absolutely non-price sensitive fashion. The drop that followed might have
even been bigger than anticipated, but it gave the seller all the time in the world to buy
the February contracts at extremely attractive prices, compared with the switch rate.

References to large put-option buying during the previous days have also been referred to
and we might not find out what really happened, but it appears that this has been
considered a buying opportunity.

Gold prices recovered nicely after this event and prices reached $1730 before being sold
off again on last Friday afternoon. One of the reasons given was the slow progress in the
talks about the “Fiscal Cliff”, but that appears to be more of an excuse than an
explanation. There seems to be a real danger that gold could see some more long
liquidation before the end of the year, as liquidity and adding risks make way towards
booking profits and closing the books for the year.

The immediate drivers for the gold price appear to be the progress of the talks in the US
about the “Fiscal Cliff” and the developments in the European Sovereign debt crisis. It
appears now that the markets have the certainty that the uncertainties will continue, until
at least September 2013, the time of the German general election. Greece will most likely
receive the required payments as a sort of drip-feed patient, unless real implementations
of the Greek government’s decisions take place and effect.

Physical buying has been evident on Thursday and Friday and this has to be considered
helpful, but the overall amount of physical buying seen, has to be described as
disappointing.

The premium from Gold over Platinum fell last week to $115. The latest Commitment of
Traders Report (COTR) shows an increase in long positions, accompanied by an increase in
fresh short positions.

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