Russians, Chinese Supporting Gold Price

Gold threatened to breach the $1,200 level on Friday before rebounding. The sentiment was helped by word that the Russian central bank added 1.3 million ounces to reserves in October and that was before the price drop. The Chinese and Russians have been supporting the market below $1,250 this month, which is helping to offset the large futures and ETF liquidation. The outflow from gold ETFs last week alone was 19 tons, and the net long futures positions through Tuesday was the lowest since March. As a December rate hike seems to be a done deal and already reflected in the Fed funds and the dollar rally it seems that being short gold at this point has limited downside. The bigger issue is whether it becomes dead money to be long gold as everyone seems to be buying into the growth and risk on mentality of the Republican stimulus. I am still a believer of owning gold in euros as I think the European Central Bank has no answers especially ahead of the Italian and French elections and at some point the Asian selling of U.S. Treasuries will put the $20 trillion debt in focus again. We all know that President-elect Donald Trump loves gold (just look at the walls in his New York condo and Mar-a-Lago estate). The euro got a bit of a bid on German Chancellor Angela Merkel's announcement that she will seek re-election as the lone liberal. Europe is also getting help on hopes that Deutsche Bank, which is the Trump hotel empire's largest lender, may get some relief by having Trump in the White House. Don't be fooled by the recent rising tides lifts all boats equity rally; Deutsche Bank and Italian banks have much larger issues on their derivatives balance sheet. The U.S may be poised for growth, but Europe has so many issues and so few answers. Silver ETFs saw an outflow of 6 million ounces on Friday as silver remains a laggard to other white metals post the election. Base metals were rising overnight with Chinese specs being the main driver. Onshore buyers seem to be upbeat as the measures to ease the property market bubble seems to working, easing worries over a hard landing. Open interest across the Shanghai Futures Exchange metals board continue to rise. For the week ending Nov. 15, Comex copper length was 70,546 contracts, which is the largest since 2006. I think LME length will reflect similar length when released tomorrow. The hopes for the Trump infrastructure build has copper rising 18% since the election. But even copper bulls, like Freeport-McMoRan CEO Richard Adkerson states that copper is still dependent on an increase in Chinese demand. As I said after the election when copper rallied 25% in two days before moderating, a 10% increase in U.S. copper demand in 2017 will be offset by a 1% drop in Chinese demand. The copper surplus, according to CRU Group, currently sits at 400,000 tons so I think the price remains a bit overextended. Iron ore continues to fall on the Dalian Commodity Exchange as Chinese port stocks rose to their highest levels in over two years and nickel pig iron output rose to a 16-month high. The OPEC speculative battle is in full throttle. The amount of upside call buying over the past three sessions from hedge funds has been enormous. The positioning, as of the Commitment of Traders report, reached 1.47 million contracts, although net length only increased by 4,000 contracts, as both bullish and bearish bets were placed as of the Nov. 15 reading. The oil VIX index was at its highest since April. Regarding OPEC rhetoric, both Iran and Iraq made recommendations for an agreement and remain optimistic, but those suggestions remain opaque. On the domestic front, the Baker Hughes rig count rose 19, which is largest weekly gain since July 2015. The rig count is now 49% off its lows of May. The products rally where inventories have not been growing, is being led by gasoline, which is now $0.40 higher than its trough in February. Heating oil is now 38% higher, year to date. Inventories for crude are expected to rise again this week, but the fact that the market has rebounded by 10% in the past week in the face of dollar headwinds is very impressive.

Russians, Chinese Supporting Gold Price

However, being short gold right now has limited downside.

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