Tuesday, January 21st 06:59 PM IST

The Return of Gold: Long positions rise despite dollar gains

# gold  # silver  # short positions  # long positions  # US dollar  

While short positioning in gold futures remains near record levels, over the past two weeks shorts have moderated and longs have increased, indicating investors’ confidence that gold is the "slam dunk" short that some brokers have been touting may have been shaken by its recent strong performance.

LONDON (Bullion Street): Gold short positions have moderated while long positions have risen despite strong US dollar unable to pull down gold prices, according to a review by ETF securties Ltd (ETFS).

Despite the US dollar appreciating on the back of positive economic data, the gold price gained for a second consecutive week last week. The lower-than-expected payrolls numbers two Friday’s ago appears to have served as a reminder that gold may provide investors one of the better hedges against the risk that the strong US economic recovery baked into most asset prices may not be straight-line or may even prove to be wrong.

While short positioning in gold futures remains near record levels, over the past two weeks shorts have moderated and longs have increased, indicating investors’ confidence that gold is the "slam dunk" short that some brokers have been touting may have been shaken by its recent strong performance.

The silver price suffered in 2013 together with gold, but also on the back of the largest excess supply outlook among the precious metals. Silver has often been viewed as a leveraged play on gold. Since the beginning of 2000, in down months, the silver price has declined an average of 1.5 times the decline of the gold price. In 2013, the silver price declined about 1.3 times the percentage declines in the gold price.

Although more recently the correlation between the gold price and the silver price has reduced somewhat, their rolling 3 month correlation remains high at around 85%. If sentiment towards gold improves or even just stabilises, given the likelyimproved industrial demand for silver in 2014 as the global manufacturing cycle turns up, the silver price has the potential to surprise investors on the upside, ETF Securties Ltd said.

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