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The Big Driver for Precious metals this Week”, Wall Street Betting Against Silver Price

THE U.S. DOLLAR gold price drifted back below $1390 an ounce Monday morning in London, but remained well within its trading range of the last few weeks, as European stock markets edged higher, with analysts citing Wednesday’s Federal Open Market Committee decision on US monetary policy as “the big driver” for this week.

“On the whole, the market hopes for insightful comments in the course of the next Fed policy meeting…which will affect gold’s further development as well,” says a note from bullion refiner Heraeus.

Any so-called ‘tapering’ of the Fed’s $85-billion-a-month quantitative easing program “would be bearish for gold and the other precious metals” says Jonathan Butler, precious metals strategist at Mitsubishi in London.

gold_money_gearsOn the New York Comex, the so-called speculative net long position in gold futures and options – calculated as the number of ‘bullish’ long minus ‘bearish’ short contracts held by traders classed as speculators – fell in the week ended last Tuesday, according to Friday’s weekly Commitment of Traders report from the Commodity Futures Trading Commission.

Silver meantime edged back below $22 an ounce, as other industrial commodities were broadly flat on the day, while on the currency markets the Euro held steady against the Dollar above $1.33.

For silver futures, the number of short contracts held by those in the Managed Money category – which includes hedge funds and other money managers – was slightly larger than the number of long contracts, CFTC data show. The last weekly reports to show money managers betting on aggregate against the silver price were published in April – prior to that no managed money net short silver position had been published since September 2007.

“Silver has been trying in vain to regain the $22 per troy ounce mark…[but] the high level of pessimism among money managers is putting pressure on the price,” says today’s commodities report from Commerzbank.

The world’s biggest gold exchange traded fund SPDR Gold Trust (ticker: GLD) saw the volume of bullion held to back its shares hold steady at 1003.5 tonnes Friday, though it ended last week down 3.6 tonnes. The GLD has seen outflows amounting to one quarter of the gold it held at the start of this year.

Despite this, the GLD’s biggest holder, hedge fund Paulson & Co., says it has no intention of closing its Gold Fund, news agency Bloomberg reports, citing a letter to investors it has obtained.

“While gold continues to pivot between negative investment appetite, which has slowed, and softer physical demand, this week the market focus will shift to the FOMC meeting and press conference,” a note from Barclays says.

“The markets are a little bit fatigued at the moment,” agrees Victor Thianpiriya, commodities analyst at ANZ.

“They are still looking for direction from the Fed meeting. That’s clearly the big driver this week.”

Over in China meantime, Huaan Asset management, one of two physically-backed gold ETF providers to be approved by the China Securities Regulatory Commission, has said it aims to attract $400 million of initial funding – equivalent to around 9 tonnes at current prices – though no launch date has yet been announced.

“Gold hasn’t lost its appeal as a store of value in China,” says fund manager Xu Yiyi, who will run the Huaan ETF.

“Investors here usually like to buy on dips, so a decline in the bullion prices this year should work in our favor.”

Over in India, the only country with stronger gold demand than China last year, gold and silver imports amounted to $8.4 billion last month, a 90% year-on-year rise, though this was down from April’s 138% annual rise, a trade ministry official said Monday. India’s trade deficit meantime widened from $17.8 billion in April to $20.1 billion last month.

Gold and silver prices fell sharply in April, prompting a spike in physical gold demand, while Indian importers were also reported last month to be looking to get ahead of new regulations. Earlier this month, Indian authorities raised the import duty on gold to 8%, the second hike this year, and also curbed imports on a consignment basis.

In Northern Ireland meantime the conflict in Syria and tax avoidance are expected to be two of the major topics discussed by world leaders meeting for the G8 summit.

In Iran, outgoing president Mahmoud Ahmadinejad has been summoned to appear before a criminal court, the Washington Post reports, following the election Sunday of his successor Hasan Rohwani, a reputed moderate who won 51% of the vote.

Ben Traynor


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