Gold futures traders are an impatient bunch and have a tendency to follow the trend. Gold's price reversal mid-September has been met with an ongoing reduction in the net long position which shed a further 3% (or 3,948 contracts) to 12.7 million ounces (or 395 tonnes) on the week. That's small compared to the 2,225 tonnes held in ETFs but they remain important because of the large flows in and out as well as the leverage - unlike ETFs which is comparatively steady on a percentage change basis.
They may be right – there are concerns about gold prices in the short-term despite ongoing economic concerns in Europe that is reflected in the VIX Index (or fear index), which continues to hold above 30. Conversely, searches for the term "gold price" on search engines have slipped considerably and are back to a just above a three-year average which, if it is an indicator of economic fear, would suggest that the worst may be behind us for now.
Gold futures were an important component in the selloff in gold as the chart below shows us, with longs being dramatically reduced well before the market peaked at an all-time high of $1,920 on Sept. 6. If speculators have taken profit then it could be said that longer term investors with a longer term view on gold have clearly not taken fright and abandoned their expectations of higher prices.
Meanwhile gold prices have stabilized as we enter the strong quarter for physical buying and this morning gold has edged a tad higher to $1,648. Gold premiums in India are reported to be $3 in India and $10 in Shanghai reflecting particularly good demand for bars in those countries.
Although news at this time is very much focused upon Europe, there are ongoing concerns on the other side of the Atlantic with reports that US money supply has surged 33% in just four months. Within the next 10 days the US is expected to have a deficit of over $14.8 trillion — but the banner headline will be that it will have just exceeded a 100% debt to GDP ratio — with that expect dollar weakness and a firming in gold prices.