Gold and silver: Investors Reduce Long Trades

According to the CFTC, last week major investors sharply reduced their long trades in gold. Small-scale investors reduced their short trades to a greater extend. As for silver, the situation is different: there were almost no changes.

It seems like reserved optimist gradually becomes the dominant sentiment. Most investors believe in global economic recovery rather than global depression. The sentiment is based on November’s growth of the US economy, the highest in 5 months. Moreover, 4out of 6 US car manufacturers have broken their sales records. As a result, last week palladium appreciated by 13%.

According to OECD, China’s economic growth is expected to slow down from 9.3% in 2011 to 8.5% in 2012.  The Chinese Yuan has been losing in value against the US Dollar for 4 consecutive trading sessions as foreign investors keep reducing their investments in yuan-denominated assets.

The eurozone economy is still expected to shrink. This week investors will be focused on the situation in Europe. Today Angela Merkel and Nikolas Sarkozy are planning to meet in advance of another EU summit scheduled for Dec 9^th.  The US Secretary of the Treasury is to visit Europe in order to lobby tighter European integration. So far the UK, Netherlands and Ireland have been opposing such integration. On Thursday the ECB will hold a meeting on credit policy. It is expected to cut the euro interest rate. In the meantime, Italy’s new premier Monti announced a €30B austerity plan, including pension age and tax hikes.

A week before Nov 30^th the new investments in gold and other precious metals reached $446M.

The physical market of gold is quiet. Even though India is currently seeing a wedding season, everyone is trying to cut down their expenses due to higher inflation (about 10%) and higher gold prices. India’s jewelers association reports about a 40% decline in the demand for gold as compared to early 2011. In Q4 2011 India is expected to export 20-25% less gold.

Forecast: The Department of Commodity Trading, , report that yesterday gold failed to consolidate above $1750/oz. This morning the price tested the level once again. The test failed as gold rebounded from 1750 and went down. If gold eventually fails to consolidate above 1752, it will see a downtrend, with targets around 1717-1720, and even 1700.

As far as silver is concerned, it is still cannot consolidate above $33/oz. Today we can expect silver to test 33.2-33.3 once again. A failure will suggest the bears’ domination. A break below 32.5 will give way to 32.2, 32, 31.8.