Further Falls Possible but Downside Limited

Gold has fallen in US dollars and in most currencies but is higher in Swiss francs due to concerns of fees on Swiss franc deposits. Asian (except for China's CSI300) and European equities are higher as investors judge the recent sell off as excessive. Risk appetite has risen on hopes that the US and global slowdown will not be sharp.

Gold is trading at USD 1,818.80, EUR 1,254.10, GBP 1,110.90, CHF 1,482.50 and JPY 139,340 per ounce.

There is no London AM Fix this morning with London closed due to a holiday. Friday's London AM Fix was USD 1,787.00, EUR 1,237.10, GBP 1,094.17 per ounce.

Sterling did not see weakness despite UK house prices falling for a fourth month in August. Property researcher Hometrack said demand for homes may weaken further this year due to "weak consumer sentiment, pressure on household incomes and the uncertain economic outlook."


Cross Currency Table

US personal income and spending are at 12:30 GMT and pending home sales are at 14:00 GMT. ECB President Jean-Claude Trichet takes questions at 13:00 GMT from the European Parliament's economic committee in the first of a two-part hearing on key issues facing the euro zone.

When the dust settled on gold's volatile week, despite much "noise" from uninformed commentators, it showed that gold fell 2.96% on the week. This must be put in context.

The previous week alone gold had risen 6.2%. Despite the 3% sell off last week gold remains up 11.6% in dollar terms (and by similar amounts in other currencies) so far in August with just three trading days left in the month.

Meanwhile, global stock markets are down by similar amounts in August, with the FTSE down 11.7%, the DAX down 21.6%, the S&P down 8.95% and the MSCI World down 10.95%.

Thus, gold has again proven its hedging and safe haven status.

On Friday, we looked at the very robust demand being seen for physical bullion internationally as seen in tight supplies and good premiums, particularly in Asia. Physical demand is a primary importance to the medium and long term outlook for gold and silver bullion.

To get a read on the short term outlook for gold and silver it is beneficial to look at the data released from the US Commodity Futures Trading Commission late Friday evening.

It shows that in the week ended August 23, hedge-fund managers and other large speculators decreased their net-long position in New York gold futures.


Got Gold Report - Weekly Closing Table

Speculative long positions, or bets prices will rise, outnumbered short positions by 187,681 contracts on the Comex division of the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 12,405 contracts, or 6%, from a week earlier (see chart below).


Gold Large Specs, Futures

Miners, producers, jewelers and other commercial users were net-short 230,436 contracts, down 18,411 contracts, or 7%, from the previous week (see chart below).


Gold Commercials, Futures

In the silver market, hedge-fund managers and other large speculators increased their net-long position in silver futures, according to the CFTC data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 27,011 contracts the COT report showed. Net-long positions rose by 5,083 contracts, or 23%, from a week earlier (see chart below).


Silver Large Specs, futures

Miners, producers, jewelers and other commercial users were net-short 47,099 contracts, an increase of 6,418 contracts, or 16%, from the previous week (see chart below).


Silver Commercials, futures

The data shows that sentiment in the futures market towards both gold and silver remains muted with very little evidence of participants "piling in" on the long side.

Indeed, it shows that the sharp margin increases seen in silver and the margin increase seen in gold last week have had the desired effect of cooling sentiment thereby making the fundamentals in both markets sounder.

The COT data in conjunction with very robust physical demand globally and especially in China (see news) means that any correction is likely to be shallow and short prior to the primary trend reasserting itself.

Gold and silver are now entering their traditionally strong autumn months which will be supportive.

Not to mention the appalling economic, systemic and monetary backdrop which will also be highly supportive.

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Silver

Silver is trading at $40.14/oz, EUR28.37/oz and lb25.09/oz.

Platinum Group Metals

Platinum is trading at $1,830.00/oz, palladium at $757/oz and rhodium at $1,800/oz.

News

(Bloomberg) - Gold Drops as Bernanke Says Growth Intact, Offers No Additional Stimulus

(Reuters) - Spot gold falls 1% after strong rally

(Wall Street Journal) - Gold Lower In Asia On Profit-Taking; Downside Seen Limited

(Reuters Africa) - Russian Central Bank to Offer Gold-backed Loans at 7%

(CNBC) - Record Prices Spawn New Wave of China Gold Bugs

Commentary

(The Telegraph) - Ambrose Evans-Pritchard: Euro bailout in doubt as 'hysteria' sweeps Germany

(The Telegraph) - Time to quit the gold party?

(The Independent) - Shane Ross: Worth Their Weight in Gold - Gold Bugs Were Right After All

(ZeroHedge) - It May Be 2008 All Over Again, But There Is One Key Difference

(ZeroHedge) - Europe's Funding Scramble: Peeking Below The Calm Surface Waters Of French Bank Liquidity (And Lack Thereof)

(Mish's Global Economic Trend Analysis) - Capital Flight Proves Confidence in European Interbank System has Collapsed

(Financial Times) - Wolfgang M"unchau: Even a Joint Bond Might Not Save the Euro

Mark O'Byrne is executive director of Ireland-based GoldCore.

About the Author
Mark O'Byrne

Mark O'Byrne is executive director of Ireland-based GoldCore.

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