UBS | The increase in positioning as of the latest Commodity Futures Trading Commission report dated April 12 confirms persistent interest to hold gold and in a sense highlights that patience among market participants is becoming increasingly stretched. Many have been waiting for a deeper price correction to build gold positions or to add to current longs, but this has so far been elusive. The low touched during this consolidation phase was $1208 and not only has there been no follow through for attempts to move lower, but interest to buy dips has also been quite evident. Gold deserves credit for its resilience even in the face of a rebound in equities – this in a sense signifies strengthening investor convictions and helps diminish any lingering doubts about gold’s strength.
Investors have been expressing concern that Comex positioning is around the highest since 2012. Others have also noted the rangebound price action since mid- February and the slowdown in the pace of gold ETF inflows as reasons to be cautious in the near -term. But fears of missing the gold move further appear to be offsetting these concerns right now, such that investors are willing to look through the build- up in market length year -to-date and instead use gold’s ongoing consolidation as an opportunity to buy into even shallow dips.
To put gold positioning into historical context, even at the 26moz level as of last week, levels are still around 79% of the all -time high of 33moz. Despite the visible build -up in length on Comex since the beginning of the year, given the significant reduction in gold positioning over the past couple of years, the market is likely still considerably leaner now than it was at the height of the bull-run.
Interestingly, gold shorts have been very hesitant–levels have remained on hold at 9.90moz for three weeks now, highlighting that there is no appetite to short gold in the current environment.
Given where gross positioning currently is, the risk of a correction up ahead would come more from weak longs capitulating rather shorts adding to positions. While some length may need to be digested, we continue to expect any downside to continue being shallow and short -lived as robust sentiment towards gold should mean that the bulk of longs would stay co mfortable holding on to these positions.
*Image: Flickr /Bullion Vault