Heavy gold shorting was behind the recent fall in the price, UBS suggested today, but the broker expects the next batch of data to show a sharp reduction in sell activity.
UBS said in the three weeks up to March 17, six million ounces had been added to gold shorts, a 67% increase.
Net longs meanwhile fell to 7.42mln oz, the lowest level since mid-November according to the broker.
“Examining the details on positioning shows that the decline over the past month and a half has really been driven by shorts – gold gross shorts have doubled during this period, augmented by gross longs liquidating about 28% of positions.
“As the CFTC [The US Commodity Futures Trading Commission] data does not capture the move following the March 18 FOMC meeting, positioning is likely understated.
“We expect this week's CFTC report to show a considerable reduction in short positioning and some rebuilding in longs.”
Caroline Bain, of Capital Economics, also said recent shorting may have been overdone, and that the market may have overreacted.
Bain said the strength of the dollar and the prospect of Federal Reserve tightening has already affected the gold price and will not be an influence for much longer.
The research house has one of the most bullish end of year forecasts at US$1,400 and was sticking with that, while UBS has a three month forecast at $1,170 compared to Capital Economics’ $1,250.
Today gold was fairly flat, up US$4 to US$1,197, while silver flat at US$16.98 and as was platinum at US$1,147.
Major movers
Randgold Resources up 2p at 4,870p
Fresnillo up 4p at 712p
Anglo American up 12p at 1,106p