The Week In Hindsight, 01 August 2014

The effects of a 2014 increase in geopolitical tensions now appear to have faded, which has reduced the impetus for new investment in gold and forced some investors to reduce existing positions.

CFTC Commitments of Traders information revealed a substantial reduction in both short interest and long positions in gold futures over the recent week, indicating an expectation among both commercial and non-commercial participants that prices are set to decline.

Away from the changing attitude of investors toward various conflicts and geopolitical risks; better economic data emerging from the US and lower inflation on the European continent have each added to bearish sentiment surrounding gold.

Higher consumer confidence, above trend economic growth (GDP) for the second quarter and a gradual stirring of inflation in the US have all contributed to a growing pool of voices which have began to question whether or not the FOMC is behind the curve when it comes to interest rates.

The current outlook for the US economy suggests that these voices will continue to grow louder as we head into the closing stages of the year. Although we expect the FOMC to resist these calls, we do not believe this will be sufficient enough to save or support gold.

The metal faces a policy environment which is, sooner or later, likely to tighten off the back of healing developed economies. In addition to this, the environment for physical demand has deteriorated over recent months.

With falling imports from both China as well as the US, combined with market expectations for lower prices over the coming quarters; the stage is now set for gold to resume its longer term decline.

Consequently, without a drastic change in investor sentiment, we now see a clear break below the $1280 level as the most likely outcome of the weeks ahead, which would then clear the way for an eventual move back toward $1260 and below.  

Spot Gold 10 Minute Intervals

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