London, 10 October 2011

Standard Bank Focus: According to the latest CFTC data for the week ended 4 October), net speculative length for COMEX gold increased marginally, with 11.4 tonnes added over the past week. The net speculative position for gold now stands at 521.8 tonnes — well below last year’s average of 777.6 tonnes. The increase in the net position was mostly attributable to a 16.2 tonne decrease in speculative shorts. A meagre 4.7 tonnes were shed from speculative longs.

"Given the modest nature of last week’s improvement in the net position, we still feel that the speculative market, while not outright bearish, remains cautious about gold’s current prospects. Although moderating, speculative shorts remain at relatively high levels, a further signal that confidence in gold is still lacking," according to analyst Marc Ground with Standard Bank in London.

"Further evidence of this lack of confidence is the sustained decline in ETF holdings of gold. However, with only 3.7 tonnes shed over the past week, this confirms our view that, while investors are wary, they are not bearish. Nevertheless, physical demand for gold is very strong, with gold below $1,650, as we witnessed again this past week. Given the interest from the physical market, the potential for future short covering exists, which could see prices push higher," he adds.

Unlike gold, the decline in COMEX silver net speculative length continued, with a significant 431.3 tonnes lost. For the most part, the decline in the net position was attributable to 350.6 tonnes added to speculative short positions, with 80.7 tonnes shed from speculative longs compounding the declines. With net speculative length (2,766.7.0 tonnes) well below the 2010 average of 6,123.3 tonnes, market positioning looks weak and decidedly bearish (given the marked increase in short positions).

"Despite the apparent lack of confidence in the speculative market, ETF buying continues apace, with a robust 147.3 tonnes added to holdings over the past week. The promising investor interest in silver we’ve seen of late (before the liquidations of the week ended 23 September) appears to have returned. It appears as if ETFs continue to see value in silver. However, given the current market turbulence and market positioning, we would caution against taking any positions in silver."

Ends --

Commodities Now

Standard Bank Research - www.standardbank.com