Commodities | Oct 25 2012
Overall, we have been bullish the metal for a long time, however in the last two weeks have advised clients to take profits and exit positions. We are on the sidelines at the moment as we feel that the uncertainty over the next three months will see optimism about growth retract, economies come under pressure and signs that investors are finally looking at fundamentals. Yes, the equity markets will continue to trade lower. If this is the case then the reasons to hold gold have changed. The world’s largest ETF is the SPDR Gold listed on the NYSE, it has 43 million ounces, in comparing the size of the Gold fund to Central Banks around the world it would be the fifth largest holder. This is just one fund and over the last year they have popped up on most bourses, in total there is 2554 tons of the metal tied up in ETFs. In India for instance gold under ETFs has grown by 37% in the past year. India currently has 14 listed funds, and in a country which boasts annual consumption of 700 tons, it’s an important transition. So when we look at the sector we can see that if the general sentiment towards the equity markets changes then we can see additional pressure in the gold sector as a result.
Our play to shut down a lot of our long positions opting for the security of the sideline remains intact. Ditto from last week.
Chart point:
Gold and silver remain under pressure and we suggest that the pressure will stay with us for some time. Psychological support stands at US1700. We may spend a little time around this level however the market, we still think, has more on the downside to go. US1670 is the next major level.
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