StoneX Bullion round-up Monday 11th December 2023

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

• Gold hits an intra-day high in nominal terms
• But is now unwinding overbought conditions and has slipped back below $2,000
• The net gain since the start of November is just 1.1%, after a range of 10.5%
• Silver’s gains have been wiped out after a range of 17.8%
• Time for gold to pause for breath; technicals deteriorating
• Silver vulnerable to a speculative overhang.

Gold; ten and twenty-day moving averages are now above 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 in large part 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 panellists 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 most recently at $1,987, giving back almost all its gains, silver moved from an open of $22.86 to reach $25.76 at the peak and was most recently at $22.84.

The speed of the price moves in both 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 both gold and silver slowed abruptly in the wake of the move and while it may take a little while for conditions 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 and history of the bond market moves over the past year or so have certainly shown them to be discounting a softer tone from the Fed than has actually 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 once again saw regional increases in holdings everywhere except North America and Germany while Switzerland switched from seller to buyer, albeit in low volume. Over November as a whole the ETPs lost 10.8t, which reflects a drop in the rate of attrition over the year as a whole, but still in the red column, nonetheless. The World Gold Council tracks over 100 such funds and pegs current holdings at 3,236t as of 30th November, meaning a year-to-date drop of 234.8t or 6.6%. The WGC numbers of the first days of December are not yet available but 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, 4^th 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 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 305t (1.4%) , and 1,589t year-to-date, or 6.8 to stand at 21,707t; this compares with annual global mine production of approximately 26,000t.

Futures positioning;

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

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

Gold COMEX positioning, Money Managers (t)

Source: CFTC, StoneX

COMEX Managed Money Silver Positioning (t)

Source: CFTC, StoneX

Source: Bloomberg, StoneX