The US Dollar continues to be the key feature in the Gold market at the beginning of this week, with the ICE Dollar Index Futures gaining almost 0.5% in the early hours of Monday. The combination of the Dollar move and some early profit taking caused the Comex December Gold contract to fall more than $15 from Friday’s high of $1010.
Last week saw Gold smash through the $1,000 level once again extending the most recent rally and achieving its fourth successive weekly gain. Over the weekend many analysts and commentators have attributed much of the buying in the futures market to the Chinese Government’s need for reserve diversification.
This morning’s early profit taking has been lead by calls from some technical analysts pointing to ‘speculators’ holding record weekly ‘net long’ positions of over 29 million ounces - a jump of 6.4 million in the week. The significance of the increasing ‘net long’ speculation is said to indicate an increase in volatility, with previous examples of high ‘net long’ speculation preceding falls of up to 5%.
Elsewhere fundamental economic data may add to volatility as many investors are still looking to gold as a hedge against inflation, however analysts are anticipating a better-than-expected inflation report out of the UK tomorrow.
Expectations are of a month-on-month decrease in inflation with analysts forecasting August inflation at 1.4%.
Last weeks strong gains for UK listed gold equities have stalled following today’s drop in gold prices, multi-national gold producer Randgold Resources (LSE:RRS, NYSE: GOLD) has fallen 2% this morning losing over 90p. Similarly Yamana Gold (LSE:YAU, TSX: YRI) also dropped 2% in early trading.