Gold price falls back from 6-year highs

After hitting six-year highs overnight, gold fell back in busy Friday morning dealings as investors indulged in profit-taking ahead of the weekend.

Gold for delivery in August, the most active futures contract trading in New York, touched a high of $1,454.40 an ounce in after-hours trading on Thursday, but gave up all of the day’s gains to exchange hands for $1,427.40 by lunchtime on Friday.

Silver was back at breakeven compared to Thursday’s close by Friday afternoon after reaching a 13-month high of $16.625 an ounce earlier in the day, and is set to end the week nearly 7% higher.

Ross Norman of Sharps Pixley, London’s largest bullion broker, said silver is “at long last joining the party and is authenticating the bull run”:

Gold did the heavy lifting by breaching the 6 year resistance at $1,360, but it was silver’s intransigence that worried.

Rather like the vapours emanating from the Temple of Apollo at the oracle in ancient Delphi, silver’s price action now portends well for gold.

The gold/silver ratio has fallen from 95 to 87 and if you like gold you should positively love silver as there is scope for a further correction.

The gold-silver ratio hit a 26-year high recently, partly explained by the fact that silver’s number one source of demand is an industry where worries about global economic growth is clouding the outlook.

Hedge funds waver

The Commitment of Traders report for the week ending July 9 saw large-scale speculators in gold futures like hedge funds trim their net long gold positions – bets on rising prices – by 10% to 750 tonnes from two-year highs the week before.

Hedge funds cuts to bullish positions could explain gold’s loss of momentum (the metal was trading at today’s level four weeks ago), but overall sentiment among speculators is a far cry from this time last year.

A year ago, so-called managed money was net short – bets that gold can be bought back cheaper in the future – by more than 300 tonnes which translates into a 1,000 tonne swing. On top of that, longs still outnumber shorts by a 10:1 ratio.

The CFTC report is issued at the close of trading on Friday, which could provide further insight on how hedge funds view the outlook for gold and silver, where positioning has been much more bearish.