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Here is Alasdair Macleod's precious metal roundup for this week, and his list of possible market moving events for next week. In addition, you will find links to the precious metal commentary pieces we have published over the past week. We hope you enjoy them.

 

by Alasdair Macleod - Head of Research

Weekly Market Roundup   Next Week
Before yesterday’s $20 fall in the gold price there were signs that gold and silver prices were building a base. To assess whether or not this 1.5% drop threatens to push the gold price below $1200 we should look at technical and market positions.

In London the gold forward rate has been negative all week for both one and two months delivery, indicating physical metal is in short supply. This is ultimately bad news for the bears running short positions in futures as shown by the chart below, which illustrates the oversold state of the market against a background of price backwardation.
 

As of 26th November (the last data point) the money manager category had rapidly escalated its shorts (red line) to an all-time record of 83,730 contracts, which combined with historically minimal long positions gives the smallest net long position recorded since my data began in 2006.

This is tangible evidence of a herd mentality that just sells gold because it is trending down, and there have been several attempts in recent weeks to drive the price below $1200. These bear raids work by triggering stop-loss orders, but the market action suggests the stop losses are not there in sufficient quantity to have much effect. Furthermore before the year-end, funds will enter into book-squaring mode.

From such technical extremes can spring unexpected rallies that swamp opinions and speculation over subjects such as tapering and the course of bond prices.

The situation is even more extreme in silver:



In this case money managers have dramatically piled on the shorts to previously unseen levels, so much so that for the first time they are net short, shown by the red line crossing the blue. This is a fair indication that hedge funds have added to their gold shorts by gearing up even further through silver’s extra volatility, confirming the extreme bearishness prevailing in Western capital markets.

It is out of such extremes in sentiment that significant market turning points are made
 

 
 
  Here are some of the more important announcements due next week.

The FOMC meeting on Wednesday is likely to be the major event next week for precious metals, and with increased speculation likely ahead of the announcement we can expect volatile rumour-driven markets.

There follows a list of significant announcements due next week.

Monday. 

Eurozone: Flash PMI, Trade Balance.

UK: CBI Industrial Trends.

US: Empire State Survey, Non-Farm Productivity, Unit Labour Costs, Flash Manufacturing PMI, Capacity Utilisation, Industrial Production.

Tuesday. 

UK: CPI, Input/Output Prices, ONS House Prices.

Eurozone: Employment, HICP (Final), Labour Cost Index.

US: CPI, Current Account, NAHB Builders Survey.

Japan: Customs Cleared Trade.

Wednesday. 

UK: Average Earnings, Claimant Count Change, Unemployment Rate, CBI Distributive Trades.

US: Building Permits, Housing Starts, FOMC Fed Funds Rate.

Thursday. 

Japan: All Industry Activity Index, Leading Indicator (Final).

Eurozone: Current Account.

UK: Retail Sales.

US: Initial Claims, Existing Home Sales, Leading Indicator.

Friday. 

UK: Current Account, GDP (Final), Public Borrowing,

US: GDP (3rd est.).

Eurozone: Flash Consumer Sentiment.


GOLD RESEARCH ANALYSIS

13 December 2013 - Martyn White
Planning for a golden retirement
Is it the right time to buy gold, particularly for retirement purposes?

Martyn provides us with the answers to some pertinent questions in December edition of Business Brief.

13 December 2013 - Alasdair Macleod

Value versus momentum and the gold price

For many commentators there are two distinct camps in the gold market: investors in bullion and speculators in the paper market. With the two markets pulling in different directions some dealers think it is only a matter of time before derivatives fail completely and the price of gold will rocket on physical demand.

That two ends of one market are in conflict and one will win over the other is a tempting conclusion, but this is unhelpful. The conflict is more about two different types of investor: there are those who buy or sell on grounds of value and momentum investors who deal on the trend. It is the market structure that tends to corral them into different camps. Value investors generally go .........read more

9 December 2013 - Alasdair Macleod
The relevance of Say's Law

I imagine many GoldMoney customers read much commentary relevant to gold and economics, and come up against Say's Law. Its importance might not be immediately obvious.

Jean-Baptiste Say was a French businessman and economist in his early twenties when the Bastille was stormed and the french revolution followed. While the terrors unleashed by the ....... read more
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