Metals: Three weeks of net gold accumulation reversed during the week with speculators cutting their net long by 4% to 106k lots. Both long and short positions were reduced on a combination of the summer holiday sapping interest and probably more important, gold’s inability to respond favorably to the month-long decline in U.S. Treasury yields, both nominal and especially important for gold, real yields. A continued rally in stocks, the recent dollar rally and investors accepting central banks transitory message on inflation have all resulted in reduced demand for gold.
Silver meanwhile have struggled even more with the XAUXAG ratio briefly touching a six-month low last week, thereby supporting a further reduction in bullish silver bets by 19% to just 21k lots, a 14-month low.
Copper’s renewed bid which during the week helped drive it higher by 6.6% and above its recent $4.2 to $4.4 range attracted fresh buying with the net long jumping 58% to 46k lots, still half the maximum exposure seen during the past year. Flooding in China and Europe raising demand for reconstruction and a softer dollar, some of the main drivers behind the renewed pickup in demand.
Gold remains stuck near $1800 following an end of week roller-coaster which saw the metal reverse sharply lower after once again finding resistance and thereby creating a double top at $1833, the 50% retracement of the June sell-off. Having just returned from my summer holiday, the first thing that springs to my mind is golds disappointed performance following its inability to respond positively to the July collapse in US 10-year real yields to a record low. Overall, the metal remains stuck in a 40-dollar range with a continued recovery in silver from a recent six-month low against gold needed to support precious metals in general.