One of the hallmarks of the decline in gold prices from an all-time high of $1,920 in September 2011 (as the market collapsed by 26%) was the significant long liquidation of speculative positions by gold futures traders on the CME in New York.
Since then, gold has rallied steadily — firstly breaching the important 200-day moving average, which was then at $1644, and subsequently technical and psychological resistance around the $1,700 level. And it has done this without any significant re-building of net-long positions of the CME futures traders (see chart below).
By last Friday the Commitments of Traders reports suggested that futures traders are now at a net-long of 126,937 contracts (a little under 400 tonnes). That is a gain of nearly 9% on the previous weeks position but still less than half the levels seen mid last year.
With the U.S. Federal Reserve committing to keep interest rates at low levels at least until "late-2014" this would suggest the gold market still has legs to run and it is surely only a question of time before the floor traders join the party and rebuild their long positions in earnest.
With gold starting 2012 at a cracking pace, gaining 10% in the first month (equaling the gains of the whole of 2011) , gold may be poised to set fresh highs this year, but much earlier than many — ourselves included — would have expected.
Norman is the owner and chief executive officer of the London-based gold broker Sharps Pixley Ltd.