Lacklustre gold price entering make or break territory

On Wednesday gold continued to drift lower with December futures trading on the Comex market in New York exchanging hands at $1,325.90 an ounce in early morning trade, down $4.50 from Tuesday's close.

Gold touched a two-year high in July around $1,380 an ounce and year to date the metal is up 26% or close to $280 an ounce, one of its best annual performances since 1980.

Saxo Bank’s head of commodity strategy Ole Hansen, says gold has failed to break higher despite weakness in US bond yields and continues to trade in a tight range.

Hansen sees further strength in the dollar putting more pressure on the gold price as it enters make or break territory and a move below $1,315 which the metal has bounced off a few times recently or a break through the $1,305 level would signal more weakness to come.

 

 

Buying fatigue

Last week according to the CFTC's weekly Commitment of Traders data up to September 20 released on Friday speculators showed impatience with gold's inability to break out of its $1,300–$1,350 an ounce range, adding more than 10% to short positions and cutting longs by the same proportion.

On a net basis bullish bets have now fallen to 21.9 million, down 24% from the all-time high and the lowest net position since May's correction, when gold came close to falling through the $1,200 an ounce level.

Investors are also pulling out of top physical gold-backed exchange traded fund – SPDR Gold Shares (NYSEARCA: GLD). GLD's holdings hit a 2016 high at the same hedge funds were stocking up on futures lots in July, but some 33.6 tonnes have been pulled out from the fund's vaults since then, reducing the value of holdings by $2.2 billion.

GLD dwarfs other physically-backed gold ETFs holding more than 45% of the global total and after a few dismal years, GLD rise in assets under management in 2016 surpassed the banner years of 2009 and 2010 when investors caught in the global financial crisis and spooked by quantitative easing piled into GLD.