Report: Any gold price rally will be sweet but short

Gold to catch a short break

On Monday gold for delivery in June – the most active futures contract – drifted further below the psychologically important $1,200 an ounce level, briefly falling to levels last seen at the beginning of the year.

On the Comex division of the New York Mercantile Exchange, gold touched an intraday low of $1,183.70 an ounce before recovering to above $1,190 during late afternoon trade, a two week low.

Gold started 2015 with a bang rising to $1,307 an ounce three weeks into the new year, but by mid-March had fallen back to a near-four low of $1,148.20 an ounce. All attempts to break resistance at $1,225 since then has failed and a recent report by Credit Suisse quoted by Barron’s predicts renewed weakness for the metal in the second half.

The investment and bullion bank sees the potential for a near-term rally: “We are constructive on the gold price until the beginning of June on typical seasonal strength from the India wedding season, combined with the potential for an improvement in long positioning on the Nymex Comex following recent weak U.S. economic data.”

While not in evidence during Tuesday’s trading hedge funds have double their bullish bets on the gold price over the last two weeks after eight straight weeks of increasingly bearish positioning on the gold market to levels last seen December 2013

In the week to April 7 according to the Commodity Futures Trading Commission’s weekly Commitment of Traders data, hedge funds slashed short positions and at the same time added to long positions in gold. That resulted in a 43% increase in their net long positions – bets that price will rise – for the week and a similar rise as the week before. Hedge funds are now long 6.5 million ounces compared to 3.1 million ounces mid-March.

While futures speculators may support the price for the next two months, Credit Suisse becomes “more bearish on gold again in June due to lack of physical buying along with potential renewed anticipation of a Federal Reserve rate hike.”

The bank sees a positive 2016 with a prediction for the gold price of $1,250 as the market moves into deficit as a stronger dollar is offset by “continued strong physical demand from Asia, Central Bank purchases and tapering mine supply.”

An industry gathering reached similar conclusions on Tuesday with upside potential capped at $1,250 and the risk of a sliding price in the second half.

The gold price will end 2015 somewhere between $1,151 and $1,250 an ounce delegates at the Dubai Precious Metals Conference voted according to Platts News.

Harish Pawani of Bin Sabt Jewelry, one of the largest gold wholesalers in the mid-East predicted a 2015 average of between $1,150 – $1,175 while both Edward Meir, senior commodity consultant at INTL FCStone, and Rhona O’Connell, head of GFMS Thomson Reuters, predicted a low of $1,100 in 2015. Meir sees an average of $1,235 and O’Connell $1,170 Platts reported.

Image by Matt Neale

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