Gold takes early losses after budget agreement

A US government shutdown was averted in last minute negotiations late on Friday night and the pressure that the approaching event was placing on the US dollar was seen abating this morning by currency traders. The small boost that the greenback received, along with a larger than $1 decline in crude oil prices following news that Col. Gaddafi has agreed to a cease-fire under pressure from the African Union prompted profit-taking to emerge across the board in the commodity complex. Silver remained the lone and curious standout in pre-opening market action and was still rising on inertia from last week’s speculation-fueled nearly 9% gain. Analysts at UBS noted that “It takes a brave investor to buy silver right now.”

Monday’s precious metals trading opened with losses in three out of the four principal metals we track and with no change in rhodium. Gold fell $7.60 per ounce at the start of the first session of the week, touching the $1,467.40 mark as speculators sold the metal following a scaling of peaks near $1,477.00 on dollar bearishness and generalized euphoria in the commodities’ complex. Despite ‘frothy’ conditions as reflected in bullish sentiment levels (93% in gold, and 96% in silver) net speculative length for the metals continued to rise in the latest set of CFTC-originated data.

CFTC data also shows that dollar bears – a species that roamed quite freely last week as the US government appeared to be heading for a shutdown – are contemplating staking out a possible summer hibernation cave in the wake of recent Fed jawboning. Bloomberg reports that “Statements by central bankers have encouraged dollar bulls. Fed Bank Presidents Thomas Hoenig, Jeffrey Lacker, Charles Plosser and James Bullard have signaled optimism about the U.S., with St. Louis Fed President Bullard saying the central bank may be able to cut about $100 billion from its $600 bond-buying plan. The Federal Open Market Committee has reiterated rates will be kept at “exceptionally low levels” for an “extended period” for the past 25 months.

Bloomberg goes on to note that, as a result of such central bank posturing “futures traders have trimmed holdings on the dollar’s decline over the last month, data from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a drop in the dollar compared with those on a gain reached 405,267 last month, the most since the data began in 2003.”

Meanwhile, Standard Bank’s (SA) analysts noted this morning that, as regards gold’s speculative positioning, “Speculative shorts, currently at 131.7 tonnes, are still relatively high compared to last year’s average of 90.7 tonnes, indicative of a market not as confident in gold’s prospects as in 2010. This is most likely attributable to concerns over an end to US monetary accommodation. Nevertheless, should risk aversion continue to dominate markets (political unrest in the MENA region and debt concerns in the Eurozone), these short positions could fall further.

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