Wednesday, August 14, 2013

Gold's improving sentiment backdrop

Investor psychology for gold remains negative, and that’s potentially bullish from a contrarian standpoint.  

Sentiment towards gold remains weak as gold backed ETF holdings fell to a new low on August 7, according to Sharps Pixley.  ETF holdings in countries such as Japan and India, by contrast, remained stable even as gold prices plunged this year.  This throws in sharp relief the attitude towards gold among Asian investors.  As some pundits have observed, it could also help shape the future for global gold demand.

Short covering is also coming into play, which is boosting the price of gold near-term.  Net combined non-commercial positions for gold declined 23,518 contracts in the week ending August 6. Net non-commercial gold positions also saw its biggest increase since August 2012 before the commencement of QE3.

Meanwhile the short-term chart pattern for the iShares Gold Trust ETF (IAU) is firming up and looking more constructive by the week.  A decisive breakout above the nearest pivotal high of 13.05 (the July 23 close) would likely stimulate additional short covering.