Gold stable amid equity rout, short-covering likely

Otmane El Rhazi from The Bullion Desk.

The gold price was lower on Monday morning but not far from its highest in around seven weeks while a rout in global equity markets continues to offer support.

Spot gold was last at $1,153.8/1,154.20 per ounce, down $6.70 on Friday’s close. Trade has ranged from $1,152.4 to $1,164.3 so far. Gold peaked at $1,168.40 on Friday, its highest since July 7.

“Sustained interest in the metal against a backdrop of volatility in equity markets should see continued support for gold around $1,150,” MKS said in a note

Stock markets in Asia plummeted on Monday, with the Shanghai composite index dropping 8.49 percent – it has not lost all the gains it made this year – on concerns about the Chinese economy following a run of disappointing data.

The Hang Seng fell five percent and European indices also opened lower this morning, with more than 40 billion pounds wiped off the FTSE 100 in around three hours.

“The general sell-off this morning seems to be capping gold prices for now so some consolidation seems likely but we would expect dips to be well supported and there may well be more short-covering,” William Adams, FastMarkets head of research, said.

Meanwhile, the net long fund position (NLFP) on Comex climbed 9,217 contracts last week when 11,283 lots of short-covering outweighed 2,066 contracts of long liquidation.

The gross short position is at 144,053 contracts, down from a record high of 159,441 contracts on July 21. Previous peaks were around the 110,000-120,000 level, so the gross short position remains large.

Inflows in gold ETF holdings continued – holdings in the funds tracked by FastMarkets have increased to 1,529.74 tonnes.

“It is hard to say where gold is going to go over the short-term. On the one hand, the turmoil in global equity markets, which likely will continue over the short-term given the intensity of the declines and the sharp deterioration in the technical picture, should provide gold with a degree of support,” INTL FCStone analyst Edward Meir said.

“However, the prospect of the Fed raising rates could be a bearish signal, as it could boost the dollar vis-a-vis other major currencies,” he added.

The dollar index is down – it was last at 94.25. The turmoil across markets makes it less likely the Fed will raise rates in September, which is weighing on the US currency.

A rise in US interest rates is by no means certain, with the futures curve assigning the likelihood at about 40 percent, Meir noted.

As for the other precious metals, silver was last at $14.91/14.97 per ounce, down 38 cents. Platinum at $995/1,000 was $23 lower and palladium at $585/591 was down $16.

(Editing by Mark Shaw)

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