Gold sees profit taking as investors demand liquidity. Gold prices were hit by a sharply appreciating USD and the announcement of a further 21% increase in gold futures margin requirements by the CME on Friday. Gold:silver ratio at 54 times is the highest in nearly a year. While gold prices dipped below $1600 per ounce, representing an 10 per cent drop over the past week, Silver prices plunged by around 25 per cent over the same period.
Investors reduce gold positioning by 30% from 2011 highs. Net long noncommercial positions indicates that speculative gold holdings were at the lowest levels since July 2011.
Investor deleveraging hits precious metal prices. Rising concern over when, not if, Greece will default has prompted investors to liquidate investment positions. Gold has recorded positive returns in 2011, and it is often the better performing parts of a portfolio that are liquidiated to fund margin calls or a move into cash and bonds. The USD has benefited and gold’s historical inverse correlation has seen sharp price declines in gold and silver. The increase in the CME Gold margins by over 20% added to the lacklustre sentiment for gold.
Memories of gold price drop in 2008 as gold Silver ratio hits highest level in a year. The moves in the gold price mirror those seen in September 2008 when gold acted as an important source of liquidity in the earliest stages of the post-Lehman credit crisis. Prices subsequently bounced back rapidly vs. other assets in late 2008 with gold positions being quickly rebuilt as investors built diversified positions in perceived store of value assets. Silver’s closer ties to the global industrial cycle have potentially fuelled the stronger market reaction as risk appetite has evaporated in recent weeks.
Gold holdings were at the lowest in just over two months according to CFTC futures data. Speculative net long gold positions last week dropped by around 30% from the 2011 highs as investors liquidated long positions, whereas silver net long speculative positions have dropped by around 20% from 2011 highs seen in August.
Courtesy: ETF Securities Ltd
