“Reading Mr.Marc Faber 's November newsletter he says that a meaningful correction in gold could lie ahead for two reasons: commercials are heavily short the bullion while small traders are heavily long it. Usually, he concludes, this is not a good combination. Why these facts are so important? Thank you for your thoughts.”

Eoin Treacy's view Thank you for this topical question. Generally speaking when there is a wide disparity between the motivations of institutional and retail buyers it suggests that supply and demand may be coming back into balance or temporarily reversing. Retail buyers are often the last to become aware of a major change in market dynamics so this is also a reason for caution when large commercials are bearish.

Gold pulled back sharply on Friday, closing the majority of its overextension relative to the 200-day MA in the process. It has been our contention since the summer that gold has completed the distribution phase of its more than yearlong correction and moved into the accumulation phase. If this remains the case, then gold will hold the progression of higher reaction lows which has been evident since May. While the 200-day MA represents a potential area of support, $1600 is by far the more important level when we consider the consistency of the medium-term uptrend.

In simple terms, if the reassertion of gold's medium-term uptrend is still a realistic goal it will need to find support above the May lows. I believe it will and I am looking to buy back the long position stopped out on Friday once there is some evidence of support building.