Gold Bulls Strongest Since August as Funds Retreat: Commodities
Comment of the Day

December 28 2012

Commentary by David Fuller

Gold Bulls Strongest Since August as Funds Retreat: Commodities

This headline from Bloomberg certainly caught my eye following a dreary three months for the price of gold. Here is the opening:
Gold traders are the most bullish in four months as U.S. lawmakers near a deadline for budget talks, at a time when hedge funds are cutting bets on higher prices.

Fifteen of 19 analysts surveyed by Bloomberg expect prices to rise next week and one was bearish. A further three were neutral, making the proportion of bulls the highest since Aug. 24. Investors bought 60 percent more this year through gold- backed exchange-traded productscompared with 2011, boosting holdings to a record on Dec. 20 and which are now valued at $140.5 billion, data compiled by Bloomberg show.

Bullion is headed for a 12th consecutive annual gain, the longest run in at least nine decades, as central banks from Europe to China pledge more steps to spur economic growth. Hedge funds that were the most bullish in 13 months in October have since pared wagers by 43 percent as lawmakers failed to agree on a deal to avert more than $600 billion of automatic tax increases and spending cuts scheduled to start next month.

"The problems we've seen over the last year haven't disappeared," said Thorsten Proettel, a commodities analyst at Landesbank Baden Wuerttemberg in Stuttgart, Germany. "There is still lots of potential for trouble in the world and that is a good reason for people to stay in gold or buy more."

The metal advanced 5.9 percent to $1,656.19 an ounce in London this year, even after heading for a third consecutive monthly drop.

David Fuller's view Everyone has a view on gold but this is one of the more interesting articles on the yellow metal that I have seen recently.

In behavioural technical analysis it generally pays to have an objective view regarding what the crowd is most likely to do. With hindsight, I feel that I was careless back in early October when gold was looking at $1800 because I allowed my view to run ahead of the facts in assuming that it would pause only temporarily before pushing above that level, converting more people to a bullish hypothesis in the process. I did take some good profits in silver and platinum but I allowed my expiring gold longs to be rolled forward and I also increased them.

However, plenty of traders are likely to have focussed on the resistance that has been encountered near $1800 and somewhat higher following the accelerated peak in September 2011. Therefore, in reaching that level for the fourth time after a brisk rally in August and early September, I was overconfident that it would be cleared following a short pause. Subsequent action suggests that plenty of people were looking for a fourth consecutive selling opportunity, and they have been successful. Some trading systems will have also programmed in that resistance.

Meanwhile, gold is still well above its range lows near $1525 but every additional step in that direction will only increase many people's views that we are looking at a large top formation. I think it will rally and I would like to see that start next week. Incidentally, gold fell very sharply last December, and rallied almost as quickly in January on its third move towards $1800. A sustained push above that level is required to reconfirm the bullish hypothesis.

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