Gold market shows clear strength

After numerous forward traders took advantage of the falling gold price to reduce short positions in the meantime, the gold market again showed clear strength in the second half of the week.

 

Gold price stable

Even though the price of gold recently dropped below the 1,500 US dollar threshold again and again, the precious metal was immediately in demand again when the existing economic and monetary problems came to light. This is also reflected in the positions of the largest trading groups on the US futures market. The current CoT data from trading gold futures on COMEX show the following changes as of October 1, 2019.

 

CoT data

The net short position of the “Commercials” initially fell by 12 percent to 303,688 contracts compared to the previous week. The swap dealers (including major banks) reduced their net sales by 15 percent to 152,989 contracts. On the opposite side, the net long position of the “big speculators” fell by almost 14 percent to 268,993 contracts by Tuesday. Net purchases of managed money (hedge funds, investment companies) fell by around 20 percent to 190,811 contracts.

 

Short coverage

Open Interest, i.e. the sum of all open gold contracts on the COMEX, fell by 8.2 percent to 604,885 contracts compared to the previous week. This means that until the middle of the week, futures trading was dominated by the covering of short positions. The weekly low in the gold price occurred during the course of Tuesday at 1,459 US dollars per ounce. By the close of trading yesterday, Friday, Open Interest had risen by 2.7 percent to 621,535 contracts in parallel with the gold price.

 

Gold market strength

Gold finally climbed 0.5 percent last week to $1,504 an ounce (FOREX). As more futures contracts were concluded in the course of the price rise, this is a sign of overriding market strength. New futures traders were ready to trade gold futures as prices rose.

 

Outlook

Overall, however, the net positions of the largest groups of traders remain at relatively high levels (see chart above). This means that during periods of weakness, the price of gold is likely to come under pressure again and again via the US futures market. Short sellers are likely to seize every opportunity to rid themselves of the risks of a rising gold price in the short term.