Gold near 3-month highs as Hungary increases reserves

Summary:

• Gold remains near recent 3-month highs at 1230

• Hungary increases reserves tenfold

• Precious metal well supported despite recovery in risk assets

After respecting an uncharacteristically narrow range for several months there’s been a strong move higher in the price of Gold of late, with bullion surging higher. The market received a boost last week when US inflation came in a little lower than expected and price continues to trade not far from a 3-month high around the $1230 mark.    

Gold has rallied in recent session following the US CPI miss last week. Price is now back above the $1230 mark and close to a 3-month high. Source: xStation

While the CPI miss may have provided the spark for this breakout, there are several other factors at play. Reports today show that Hungary has been a big buyer of Gold of late, increasing its reserves tenfold to 31.5 tons. Central bank governor Gyorgy Matolcsy said the decision was of “economic and national strategic importance,” recalling the country’s medieval history when he said the Hungarian kingdom had been flush with gold. Mr Matolcsy said the decision had been made after Hungarian premier Viktor Orban requested a year ago that the bank assess its gold strategy. According to the bank’s vice-president Marton Nagy, gold now accounts for 4.4 per cent of the national bank’s reserves, on par with the average among the European Union’s eastern members.

Another factor which could be providing upwards pressure on price is the extreme positioning seen amongst speculators. According to the latest CFTC report there is a net total of 38,175 contracts short Gold amongst managed money, with this position almost doubling in the past week as a further 16,353 shorts were added. This is the lowest level in the past year with a 52-week range percentile coming in at 0 and seems to show that many people were caught off guard. An extreme reading such as this can be seen as a contrarian indicator as the trade is too crowded, meaning that there’s not much additional selling pressure out there given that most are already short. Furthermore, on any gains these shorts may start to cover and in doing so provide buying pressure in the market and a short squeeze rally.

The latest COT figures showed speculative positioning in Gold to be at an extremely low level on a net basis. This could be seen as a contrarian signal for price gains. Source: CFTC

We focused on another precious metal, Silver, in our 3 charts to watch this week which can be viewed here.