After eight weeks of consecutive increases, gold's net speculative length fell last week. A decline, Standard Bank attributes to "Investor uncertainty over the ability of QE3 to support prices and/or the longevity of Fed's open-ended commitment to easing."
Indeed, the bank wrote in yesterday's daily commodities note that this uncertainty is "weighing on gold", adding that it expects this week's data from the CFTC to show further weakening, although, it cautioned, "we should see some stability as the gold price moves towards $1,700."
While the bank believes that the $1,700 level should hold, it says there is likely to be resistance to higher prices between $1,741 and $1,756.
"We were not keen buyers of gold at $1,780; however, we would be at $1,700. At $1,780, we estimated that gold was pricing in too much QE already, even when compared to its behaviour during previous rounds of easing by the Fed. Should gold drop to $1,700, it would likely reflect only two months of QE from the Fed - a level we deem reasonable," the bank writes in a commodities strategy note out on Friday.
But, it adds, "the fact that the gold physical market in Asia has improved markedly from three weeks ago provides us with some comfort that there could be better support for gold going forward."
It does not believe that the physical market will push prices higher, in fact, buying interest remains historically weak for this time of year but, it says, prices closer to the $1,700 level might entice "much greater buying from the physical market."
In its latest daily commodities note, UBS's Edel Tully writes that within the gold market, nervousness and fatigue among investors is understandable "especially after gold's tamer-than-expected response to QE3 and the generally weak price action after a poor attempt to reach the key $1800 mark in early October."
Gold's performance of late, UBS writes has been a function of it having to compete with other assets for funds post QE3. Indeed, it writes, "It makes perfect sense that gold would outperform other risk assets in anticipation of QE, but underperform during the aftermath. ... On the surface, a global economic recovery would offer downside risks for gold prices inasmuch as the potential for policy normalisation starts creeping into market expectations."
But, while both UBS and Standard Bank are not surprised that gold has been performing poorly this month, neither is bearish on the metal.
Indeed, the bank wrote in yesterday's daily commodities note that this uncertainty is "weighing on gold", adding that it expects this week's data from the CFTC to show further weakening, although, it cautioned, "we should see some stability as the gold price moves towards $1,700."
While the bank believes that the $1,700 level should hold, it says there is likely to be resistance to higher prices between $1,741 and $1,756.
"We were not keen buyers of gold at $1,780; however, we would be at $1,700. At $1,780, we estimated that gold was pricing in too much QE already, even when compared to its behaviour during previous rounds of easing by the Fed. Should gold drop to $1,700, it would likely reflect only two months of QE from the Fed - a level we deem reasonable," the bank writes in a commodities strategy note out on Friday.
But, it adds, "the fact that the gold physical market in Asia has improved markedly from three weeks ago provides us with some comfort that there could be better support for gold going forward."
It does not believe that the physical market will push prices higher, in fact, buying interest remains historically weak for this time of year but, it says, prices closer to the $1,700 level might entice "much greater buying from the physical market."
In its latest daily commodities note, UBS's Edel Tully writes that within the gold market, nervousness and fatigue among investors is understandable "especially after gold's tamer-than-expected response to QE3 and the generally weak price action after a poor attempt to reach the key $1800 mark in early October."
Gold's performance of late, UBS writes has been a function of it having to compete with other assets for funds post QE3. Indeed, it writes, "It makes perfect sense that gold would outperform other risk assets in anticipation of QE, but underperform during the aftermath. ... On the surface, a global economic recovery would offer downside risks for gold prices inasmuch as the potential for policy normalisation starts creeping into market expectations."
But, while both UBS and Standard Bank are not surprised that gold has been performing poorly this month, neither is bearish on the metal.
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