Reserve Bank Of Australia Joins The Party

Gold continues to battle away at the $1,780/oz mark; over the last few days any pushes into the $1,780-1,800 band of have been rebuffed by selling. Early Monday afternoon (GMT) it looked as though bulls were in the ascendency, with gold reaching as high as $1,790. However, what we can assume to be heavy shorting of futures at the Comex from Commercial dealers was enough to contain the price below $1,780 again.

Alasdair Macleod discusses the latest Commitments of Traders data for Comex gold positions in a new Analysis piece. As he notes, the current setup in both gold and silver is one pitting hedge fund longs against the aforementioned sales from “Commercials” – a category that consists of large bullion banks and other metal dealers, as well as metal producers.

Given the size of the Commercial short position now, which stands at near-record levels, new hedge fund money entering long positions could result in spectacular short covering on the part of the Commercials. “Short covering” is when you are forced to buy a long position in a futures contract in order to offset a previous short position (or commitment to sell) that you held. This dynamic could lead to big gains in gold and silver prices in the near-term.

As many expected, the Reserve Bank of Australia did join the monetary easing party yesterday, and announced a rate cut of 25 basis points (to 3.25%). This is the RBA’s third reduction in six months, with news today that the country has recorded its biggest trade deficit in three-and-a-half years a sign that the decline in commodities seen over the last year-and-a-half is starting to hurt the aussie economy. The Australian dollar moved down a little following the announcement, but not that much given that the market had already priced in a rate cut.

This serves as a reminder though that as far as savers are concerned, there are no “good” currencies out there. All are being debased in the name of political expediency, and losing absolute value at an ever-greater pace.