GOLD PRICES fell hard on Monday, down $50 at one point from last week's fresh record highs, but the precious metal held on track for its strongest quarterly rise since the start of 2016 after investors in the giant GLD bullion-backed ETF cut their holdings while derivatives speculators built their heaviest bullish position in more than 4 years in Comex futures and options amid growing fears of a region-wide war in the Middle East,
writes Atsuko Whitehouse at BullionVault.
By value, latest data from US regulators the CFTC say that hedge funds and other Managed Money traders last week headed towards the end of September with record bullish bets on gold worth $67 billion – more than 58.3% greater than at the end of June.
Among
gold-backed ETF investment trusts, in contrast, the giant GLD saw its first week in 14 of net investor selling, shrinking 0.6% on Friday – and now worth $74bn – after erasing this year's previous outflows.
Physical gold demand today showed signs of weakening still further in the precious metal's No.1 consumer nation China as stock markets in the world's 2nd largest economy went into the week-long National Day holidays with their strongest 1-day jump in 16 years, driven 9.1% higher on the CSI300 index by the
Communist government's aggressive fiscal and monetary stimulus measures, aimed at boosting GDP to meet the politburo's 2024 growth target of 5%.
"As gold goes from strength to strength, the risk of a setback also strengthens," says derivatives platform Saxo Bank's commodity strategist Ole Hansen.
"Physical demand is slowing as investors hesitate to buy at record prices, but short-term momentum traders continue to drive futures demand."
In the week-ending last Tuesday, and as
gold set its 29th new record high of 2024 in US Dollar terms, the Managed Money category of derivatives traders raised the size of their bullish betting on gold prices by 3.5% to the most since March 2020, onset of the global Covid pandemic and lockdowns.
But that same group also raised its bearish betting by 35.8% to the heaviest gross short position since this April, when gold was trading $300 per ounce lower than today.
Net-net, says the CFTC data, that took the overall spec long position in Comex
gold futures and more leveraged options contracts up to a new 4.5-year high by size and its 6th new record by value in the past calendar quarter's 13 weeks.
"The price has strong momentum, but it is also overbought and so could take some time to consolidate the recent gains," says German refining group Heraeus.
The yellow metal has still risen 5.0% in September and shows a 13.3% rise since the end of June, marking the largest quarterly gain since Q1 2016.
"A full-blown war in Lebanon would bring another war right at Europe's doorstep," says an analyst at Denmark's largest lender Danske Bank, noting Russia's ongoing invasion of Ukraine as Palestinian militant group Hamas claimed that an Israeli airstrike today killed its leader Fatah Sharif and his family in the El-Buss refugee camp.
"For markets, it boils down to what Iran decides to do" after Israel also assassinated Hezbollah leader Sayyed Hassan Nasrallah at the weekend and attacked Tehran-backed
Houthi rebels in Yemen.
"Markets and general public interest are or have (sadly!) become immune to escalating geopolitics," says Nicky Shiels, head of metals strategy at Swiss refining and finance group MKS Pamp.
"Today's geopolitics supports higher gold floors, but not runaway ceilings."
Ahead of next Monday's anniversary of Hamas's devastating attack on Israel on 7 October 2023, gold prices have risen 45.0% in Dollar terms, hitting new all-time highs in terms of all major currencies except the Russian Ruble.
Ahead of China's autumn Golden Week holidays, gold prices on the Shanghai Gold Exchange meantime extended their discount to London quotes, presenting the biggest disincentive to new bullion imports in over 3 years at $21 per ounce on Monday.
Prices for silver, which finds over half its end-use demand from industry and technology, fell harder than gold, down 4.5% from last Thursday's new 12-year high of $32.71 to trade at $31.25 per Troy ounce.
