miércoles, 18 de septiembre de 2013

miércoles, septiembre 18, 2013

Gold - Is It Time To Re-Enter?
              


Last week, gold prices went down by a whopping 5%, from $1,390 to $1,320's.

This was mainly attributable to easing geopolitical tensions in Syria. The United States agreed to call off military action against Syria under a deal with Russia to control over the stockpile of Syrian chemical weapons. US Secretary of State John Kerry and Russian Foreign Minister agreed on September 14 in Geneva on a framework for finding and destroying stockpiles of poison gas. The UN also confirmed that it has received documents necessary to admit Syria into the chemical weapons convention treaty.

Consequently, until the FOMC decision on September 17-18, any rally is likely to be sold with $1,350 being the key level to watch.

Gold rebounded last Friday to close at US $1,327 on high volumes, suggesting that the buying interest remains strong at the moment.

On Friday September 15th, the CFTC reported that hedge funds and money managers cut bullish bets in gold, by 16,466 lots to 84,929, for the first time in 5 weeks, so it seems that most market participants liquidated their long positions and re-established short ones. As a result, I believe that gold traders are expecting more tapering than market expectations of $10bn to $15bn. Thus, a trading strategy would be "Buy the rumor, sell the news", which means buying gold just AFTER the FOMC Meeting.

This trade idea could be profitable if there are enough short positions in the gold market and it could be even more rewarding if the FED is more dovish than expected. Finally, according to CNN, Larry Summers has withdrawn his name as a candidate to be the next chairman of the Federal Reserve and Obama accepted Summers' decision to withdraw his candidacy. As Janet Yellen, the current vice-chair of the FED, becomes once again the odds-on favorite to be the FED's next chairman, this could help boost risk assets, including precious metals.

The risk is that in addition to the high volatility in the gold market, if the FED takes clear action and does taper, there is chance that gold continues its bear pattern with the possibility of another retest of the June lows at $1,180 an ounce as gold's ETF could be a new source of significant liquidation to come. Indeed, in the first half of 2013, we have seen substantial ETF outflows, combined with heavy liquidation of investor positions on COMEX that has been mainly due to heavy liquidation by institutional investors. Implied net disinvestment declined to 456 tonnes in the first half of 2013.

Nonetheless, investors need to know that physical demand for gold is still strong and that should support bullion prices. Indeed, jewellery fabrication jumped by 22.8% in the first half of 2013, in response to a marked decline in gold prices according to GFMS.

This suggests that more and more investors prefer holding physical gold rather than paper gold, as known as ETFs. That is why even though the fact that gold prices were trending higher from the sharp sell-off in June, there has been very little fresh buying signaling disinvestment from ETF.

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