Precious metals start the week on the back foot

New York (July 7)  Precious metals are both weaker this Monday afternoon, with gold down 0.5% and silver 0.7% lower. The metals are again held back by a slightly stronger dollar, which has been in demand after the June employment report was much better than anticipated on Thursday. Prior to that jobs data, everything was looking up for gold with speculators jumping on the bullish bandwagon from all corners. As the CFTC’s positioning data showed on Friday, net longs had increased 26% to 126 thousand contracts in the week to 1st July. That, combined with the increases in the prior weeks, had helped to push net long positions in gold to their highest level since November 2012. However, since the start of the month, the price of gold has fallen somewhat, probably as the longs reduced their positions – especially after that jobs report. But there’s still scope for significant profit-taking and if we see that, prices could fall more sharply. Meanwhile the flow of gold into the SPDR Gold Trust, the world’s largest gold-backed ETF, has likewise been strong in recent weeks. It started slowly around the middle of June before rising somewhat more sharply towards the end of the month and at the start of July. On Thursday, total gold holdings at the trust stood at 796.39 tons, which was the highest level since mid-April. However, they are still very low compared to the recent history and for gold to stage a more sustainable rally we do need to see ETF inflows increase more vigorously.

In the short term, whether we will see some more weakness in gold will partly depend on price action around support at $1310, where the metal bounced back from on Thursday. This $1310 mark ties in with the upper side of a long-term bearish trend line that was broken recently, so it is a key technical level. A break below here potentially exposes the next key support at $1285, for a test. But while the metal holds above the $1310 level on a daily closing basis, the bias will remain bullish. On the upside, gold faces near term resistance around $1320, followed by $1325. Beyond these levels is the 61.8% Fibonacci retracement of the down move from the March peak, at $1334/5.