Gold hardly profit from strong increase of speculative net long positions

Gold reacted only briefly to the Chinese rate cut on Friday. An increase in price to $1,180 per troy ounce was followed by a $20 fall, driving gold to a ten-day low. Gold is trading only slightly above $1,160 per troy ounce as the new week gets underway. It is under pressure from the firm US dollar, which has appreciated against the euro to a 2½-month high of EUR-USD 1.10. 

The move in the EUR-USD exchange rate drove gold in euro terms to a four-month high of €1,070 per troy ounce for a time, notes Commerzbank. This morning sees it trading at a good €1,050, which is slightly below the technically important 200-day moving average. As the CFTC's statistics on the positioning of speculative market participants show, bets on rising prices of both gold and silver were increased considerably in the week to 20 October. 

Net long positions in gold achieved their highest level since February, for example. Net long positions in silver reached their highest level in over five years and are now only marginally below the record high they achieved at that time. In view of the sharp increase in net long positions, the response of gold and silver prices in the period under review was disappointing - gold inched up by only 0.6%. If the US Federal Reserve were to hint at a rate hike before the year is out in its communiqué to Wednesday's FOMC meeting, this could result in high selling pressure on precious metals, argues Commerzbank.