Gold is settling after its brief burst of life; silver has a speculative overhang.

Gold recently hit an intra-day high in nominal terms but is now unwinding overbought conditions and has slipped below $2,000. The net gain since the start of November is just 1.1%, after a range of 10.5%. Silver’s profits have been wiped out after a range of 17.8%. Now is the time for gold to pause for a breath, with technical factors deteriorating. Silver is still vulnerable to a speculative overhang.

Gold recently hit an intra-day high in nominal terms but is now unwinding overbought conditions and has slipped below $2,000. The net gain since the start of November is just 1.1%, after a range of 10.5%. Silver’s profits have been wiped out after a range of 17.8%. Now is the time for gold to pause for a breath, with technical factors deteriorating. Silver is still vulnerable to a speculative overhang.

Gold: ten and twenty-day moving averages are now above the spot

Source: Bloomberg, StoneX

The flurry of excitement in gold, with record highs of $2,135/ounce in Asian hours on 4th December, understandably attracted wide press attention, while volumes on COMEX on the day of the record high were also heavy at 0.38M contracts, almost twice the norm. Monday’s trading in the United States consisted largely of profit-taking after the rally that started towards the end of the previous week as the markets continued to look for interest rate cuts from the Fed and other central banks in 2024. Interestingly, in a precious metals panel that formed part of the Natural Resources Day Conference that StoneX held last week, we asked the panelists when they thought that the Fed would (as distinct from “should”) start cutting rates, there were two votes for February, one for March, one for May and two (including this writer) for the second half of the year.

Gold, silver, and the ratio, correlation

Source: Bloomberg, StoneX

While gold moved from $1,984 at the start of November to trade at $1,987, giving back almost all its gains, silver moved from an open of $22.86 to $25.76 at the peak and was most recently at $22.84.

The speed of the price moves in gold and silver was accelerated by technical trading (with the “Golden Cross” of the 50-day moving average crossing the 200-day to the upside) and compounded by algorithm and CTA trading, similarly on the way back down.

Meanwhile, the physical investment markets in gold and silver slowed abruptly after the move. While conditions may take a little while to revive, Shanghai is trading at the equivalent of $2,038/ounce, a 2.3% or $46 premium to loco London.

The bond markets are currently discounting a 39% chance of a 25-point cut in March and a 60% chance of a further cut in May. There is an argument that this is far too benign as the history of the bond market moves over the past year or so, which has shown them to be discounting a softer tone from the Fed than has been the case.

Gold, daily volumes in the COMEX February 2024 contract

Source: Bloomberg, StoneX

Exchange Traded Products

In the ETP sector, the final week of November saw regional increases in holdings everywhere except North America and Germany. Switzerland switched from seller to buyer, albeit in low volume. 

Over November, the ETPs lost 10.8 tonnes, reflecting a drop in the attrition rate over the year as a whole but still in the red column. The World Gold Council tracks over 100 such funds and pegs current holdings at 3,236 tonnes as of 30th November, meaning a year-to-date drop of 234.8 tonnes or 6.6%. The WGC numbers for the first days of December have yet to be made available. Still, the Bloomberg figures, which are strong but not complete, show three days of creations at the start of the month (the record intraday high was posted on the second trading day, 4th December), followed by light attrition in the following three days for a net gain of just below five tonnes.

Gold spot price vs ETF holdings

Source: Bloomberg, StoneX

Silver profit-taking was developed in the ETPs, with seven consecutive days of redemptions (starting before the acceleration of the rally). The net change for November overall was a loss of 305 tonnes (1.4%) and 1,589t tonnes year-to-date, or 6.8, to stand at 21,707 tonnes; this compares with annual global mine production of approximately 26,00 tonnes.

Futures markets

In the fortnight to 5th December, the managed money positions in gold saw longs rise from 449t to 528t and then contract to 497 tonnes; shorts tightened in both weeks, dropping from 203 tonnes to 157 tonnes, so the net long position rose from 246 tonnes to 357 tonnes and then contracted marginally, to 340 tonnes. 

Silver longs rose from 5,354 tonnes to 7,331 tonnes. The position was then pared to 7,049 tonnes, while in the first-week shorts were barely changed, and then increased marginally in the second week, taking the net long to 3,461 tonnes, up from 1,844 tonnes and compared with a 12-month average of 1,772 tonnes, which leaves silver vulnerable to a speculative overhand.

Gold COMEX positioning, Money Managers (tonnes)

Source: CFTC, StoneX

COMEX Managed Money Silver Positioning (tonnes)

Source: CFTC, StoneX

 Taken from analysis by Rhona O’Connell, Head of Commodity Market Analysis for EMEA & Asia, StoneX Financial Ltd.

Contact: Rhona.Oconnell@stonex.com.