Selling Pressure On Gold “Unlikely To Become Too Aggressive”, UBS Asserts
The reaction of the gold price to the US central bank’s decision to hike interest rates was understandable, UBS proclaims.
Given it was only the second time this decade the Federal Reserve had actually lifted rates, some ‘gold bugs’ might have been caught out by the decline in the precious metal’s price, but the good news for those that were is that the Swiss bank expects the price to recover.
The bad news is, it’s likely to take some time, in UBS’s view, given the forcefulness of the move in US rates and the US dollar.
“Sentiment towards gold is quite heavy at the moment. Comex data shows that shorts have been building up over the past few weeks, and tomorrow’s update covering activity to December 13th is likely to show a continuation of this trend,” predicted UBS’s Joni Teves.
The analyst finds it interesting that the appetite to take short positions on the yellow metal appears to be growing, unlike in previous periods of price weakness this year.
Whisper it quietly, but the price could even move back into treble figures – it currently trades at around US$1,137.
In order for gold prices to recover, Teves asserts, there needs to be a catalyst for markets to pare back current optimism and retrace the recent moves in rates and the US dollar.
In other words, wish for bad news.
The weakening of the price has at least encouraged some buying interest from people who actually want to own the stuff, rather than from traders.
Indian buyers have been conspicuously absent, however, following the government’s decision to withdraw 500 and 1,000 rupee notes from circulation.
Encouraging though the upturn in physical buying is, the UBS analyst believes it is only useful in providing support for the gold price, and is unable to drive the price trend.
“From a positioning standpoint, market length is currently higher than it was last year but lower than where it was around the height of the last bull-run. That investment interest this year has been characterised by a diverse set of investors getting some exposure to gold rather than a few investors building large positions suggests that the selling pressure is unlikely to become too aggressive even if current challenging conditions extend longer than we anticipate,” Teves concluded.
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