Covid-19 vaccine woes: Is investor confidence dwindling in gold?

Rajalakshmi Nirmal Chennai | Updated on November 20, 2020

ETFs report net outflows; net long position of money managers drop in Comex

Gold bulls are hunting for a place to hide in the market carnage. Gold prices in the international market fell below the first support at $1,880 on Wednesday and now at $1,866/ounce, down from $2,050/ounce in August. While some analysts see this as consolidation and say there is room for further upside, there is fear if this is beginning of liquidation of positions in gold with the vaccine for Covid-19 coming soon.

Mulling on positions of investors and speculators in gold, this is what we found:

In SPDR Gold Trust, the largest gold-backed exchange traded fund, holdings on Wednesday were reported at 1,219 tonnes, a sharp drop from 1,257.6 tonnes at the beginning of the month. This is different from the trend till September (year-to-date net inflows in all gold-backed ETFs across the globe tracked by WGC, till end of September were 1,040.7 tonnes).

Statistics from the US Commodity Futures Trading Commission (CFTC) also shows that investors need to exercise caution. The CFTC’s Disaggregated Commitments of Traders Report for November 10 (released on November 13) showed that that money managers reduced their speculative gross long positions in COMEX gold futures by 9,989 contracts (in a week) to 130,105. At the same time, short bets rose by 923 contracts to 50,322. Net long position (end of week on November 10) stood at 79,783 — down 12 per cent over the previous week. This week’s report is likely to be released late evening today, and can give further direction to traders.

Chirag Seth, Principal Consultant – South Asia, Metals Focus, says besides the Covid vaccine, investors globally are worried over delays in stimulus in US. “Despite a win of Joe Biden, the House is divided and it is not going to be very easy for Biden to give the promised stimulus. This is what is weighing on market sentiments and a reason for sharp correction in gold prices…”

In India, spot prices have corrected down from ₹52,000/10 gram to under ₹50,000. While demand from consumers and investors were strong during Dhanteras and Diwali, the trade is not sure if it will sustain.

Price direction

Chirag Seth believes that there is still some steam in gold prices. “Long-term fundamentals look solid for gold. We expect to see it at $2,250/ounce next year.”

Anuj Gupta, Deputy Vice-President, Commodity and Currency Research, Angel Broking, said, “In the short run, we expect weakness in gold. Currently, gold is trading at ₹50,000 levels. Technically, we expect gold may test ₹49,500-49,000. In international market, gold may test $1,800 to $1,780 levels. On the higher side, gold may face resistance at $1,900 to $1,920 levels.”

Ravindra Rao, VP, Head – Commodity Research at Kotak Securities, said, “Well it’s not advisable to time gold market as it is totally dependent on the virus situation, vaccine hopes and uncertainty around US stimulus due to a divided congress after the elections. On the price front, it looks like it might once correct till ₹49,000-48,500 which is where buying might re-emerge...this translates into $1,800 on Comex which is a strong support zone. Better to go for a staggered buying till ₹49,000-48,500.”

Published on November 20, 2020

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