GOLD PRICES retreated to $1066 per ounce in London on Tuesday, a new 6-year low when first reached mid-November, after briefly spiking $10 higher in Asian trade as new data showed China’s manufacturing activity contracting at the worst pace in 3 years.
“Strengthen[ing] expectations of [government] stimulus in the world’s second-largest economy,” according to news-wire reports, the data saw copper and US gasoline lead a rise in traded base metals and energy prices, extending the rebound from last week’s multi-year lows.
US and UK equities rose while Eurozone stock markets slipped, but the Euro meantime rallied against the Dollar from near 2015 lows on the FX market as new data showed unemployment across the 19-nation currency zone falling last month to its lowest since 2012 while US manufacturing orders and production shrank on the ISM PMI survey.
US Treasury bond prices also rose, pushing the yield offered by Washington’s 10-year debt down to 2.18%, the lowest level since end-October and 3 basis-points below where it stood at the start of December 2014 according to Bloomberg data.
With gold prices last week hitting new 6-year lows at $1053 ahead of the US Fed’s long-delayed hike to short-term Dollar interest rates from zero still widely expected at this month’s meeting, new data released on Monday by US regulator the CFTC showed non-commercial traders in Comex gold futures and options holding the least positive position since December 2001, with the number of bullish bets falling 30% and the number of bearish bets more than doubling since gold’s spike to $1180 in late October.
Taking the bull:bear ratio of non-commercial positioning to just 1.14, that was the fastest 1-month growth in speculative bearish bets since March, and the fastest 1-month drop in speculative bullish bets since gold prices fell from the all-time peaks above $1900 per ounce in September 2011.
“The belatedly released Comex commitment of traders report…may have spooked some shorts, prompting the rally,” says a trading desk note from refining and finance group MKS, pointing to last week’s near-record high level of bearish bets already outstanding amongst the ‘managed money’ category of traders.
“With the [European Central Bank decision] and [US jobs data] later this week, combined with the extended short positioning, it is very likely we could see further short-covering, at least for the next few sessions.”
January gold options contracts – giving traders the right to buy or sell Comex gold futures at preset prices, wherever the market has got to – showed a big rise on Monday in bullish calls targeting $1090, according to Reuters data.
Comex February gold options, however, saw a jump in the number of bearish puts targeting $975, with the heaviest open interest now in bearish puts at $1000 per ounce.
“As the Fed raises rates and the opportunity cost of holding gold increases,” says a new 2016 outlook from French investment and bullion bank Natixis, “so we expect gold prices to drop below $1000 per ounce soon after the announcement of the first hike.
“Prices could rapidly reach $950,” says the bank’s precious metals analyst Bernard Dahdah, forecasting a 2016 average price of $970 per ounce – some 17% below 2015’s average daily gold price to date.
“The strong correlation between gold and silver,” he adds, “should lead to lower silver prices,” with Natixis forecasting a 2016 average of $12.50 per ounce – some 21% below 2015 to date.
Silver tracked gold prices on Tuesday, retreating from a 2-day high at $14.25 per ounce to reach $14.15 by mid-afternoon in London trade.
