Next Week We Think This Factor Could Be The Driver For Gold

Summary

Last week speculative gold longs and shorts both cut positions.

Despite that gold remained steady for the week around $1230 per ounce.

In Asia physical gold demand remains subdued with Indian premiums flipping to a discount for the week.

It seems most of the gold buying has been through gold ETFs, which have been strong buyers of gold since the beginning of the year.

We are concerned that the market hasn't fully digested last week's Fed hawkishness, and thus we could see a drop in gold as that gets processed.

The latest Commitment of Traders (NYSE:COT) report showed a decrease in both speculative longs and shorts during the COT week (Tuesday to Tuesday) with gold essentially unchanged for the COT week. With a decent sized decrease in the speculative long positions, we would have expected gold to fall further, but it didn't so gold was seeing demand from elsewhere.

That "elsewhere" was the gold ETFs, as investors kept on adding to ETF gold holdings as Commerzbank reports that gold holdings in ETF's have risen by 58.6 tonnes over the past 13 days. Despite the rise in ETF investor sentiment, physical demand in Asia has been subdued as discounts in India are now $1 below spot prices (compared to a $3 premium last week). In China premiums were at $10 per ounce, but still well below the highs we saw a few weeks ago.

We will get more into some of these details but before that let us give investors a quick overview into the COT report for those who are not familiar with it.

About The COT Report
The COT report isissued by the CFTC every Friday, to provide market participants a breakdown of each Tuesday's open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. In plain English, this is a report that shows what positions major traders are taking in a number of financial and commodity markets.

Though there is never one report or tool that can give you certainty about where prices are headed in the future, the COT report does allow the small investors a way to see what larger traders are doing and to possibly position their positions accordingly. For example, if there is a large managed money short interest in gold, that is often an indicator that a rally may be coming because the market is overly pessimistic and saturated with shorts - so you may want to take a long position.