The tug-of-war over gold

The Commodity Futures Trading Commission (CFTC) weekly commitment of traders report for the week ending May 21 revealed a heavy bearish bias against gold on the part of speculative traders.  According to ETF Daily News, “Large speculators’ net long positions in gold futures and options continued falling to lows not seen in several years,” adding that “Net long gold positions for non-commercial traders such as hedge funds are now at the lowest level since November 2008.”

By contrast, the commercial interests – which are considered the “smart money” in the gold market – have built up a large net long position in gold.  According to the CFTC’s latest report, commercials have increased their net position in gold by over 185,000 contracts, which is the highest level of bullishness since October 2008.

The International Monetary Fund, in a May 27 report, revealed that central banks in emerging countries were big buyers of gold during the recent decline.  The IMF report listed Russia, Turkey, Belarus, Kazakhstan, Azerbaijan and Greece as buyers during the past few months.  ”We expect the trend of central bank buying to continue,” Alexandra Knight, an economist at National Australia Bank, told Bloomberg.  “The longer term trend for central banks to increase gold reserves remains intact.”

The sentiment backdrop for a confirmed bottom is certainly there; it remains only for gold to add to its recent strength by closing at least one more day higher above the May 30 close to show that buyers have taken control of the immediate-term trend.  Even more importantly, however, gold should close above the 30-day MA to prove that buyers have completely regained control from sellers, as discussed previously.  Note that gold is currently testing the resistance at the 30-day MA.