"With that, specs and ETP gold investors will likely again dominate price actions, as they reduce positions and take gold to an average of $1,150/oz in Q2-2014. While considerable declines are expected, we do not see a rout owing to the stronger fabrication demand in response to relatively low prices and risks associated with uber easy monetary policy" Melek adds.
"Based on our analysis, it seems that speculative expectations of what real interest rates are likely to be in the future are the key initial trigger and driver of gold prices. The events of the recent year also show that investor ETF positioning acts as a secondary gold price catalyst, after the initial spec-driven move. Physical demand, which includes jewelry, bullion/small bars and coins has generated the least price response. We judge these relationships, for the most part, to be in tact over the next few quarters."
"While we do see specs and ETF investors reduce holdings, the declines are unlikely to be as aggressive as they were in late-2012 and early-2013, when holdings were much higher. This implies that there will not be an outright rout."
In the big picture, we seems to be in a bottoming phase in the physical gold market.
Yes, the metal is down close to 25% YTD.
Yes, the gold miners are severely beaten down in the 50% plus range for the large caps.
Yes, it is possible for the gold price to go somewhat lower.
However, over the next few weeks to months, based on the momentum changes in the market, it appears a turnaround will finally occur.
Even TD Securities and other brokerages are beginning to see the light.
At current prices many miners are not profitable and are reducing production. The major example is the mothballing of Barrick's new Argentinian mine.
While some may project $900/oz gold, or figures even lower, the supply demand picture is presenting a more optimistic view. The fact that Indian buyers are willing to pay premiums 20% over spot price for the yellow metal, as recently reported, is evidence that a floor price is close by.
So though JP Morgan, HSBC and others may continue their market antics, the reduction in commercial net short numbers says we should see higher, even much higher prices before another season passes.
For now, I am watching GLD (see below) to see what will unfold immediately, as the recent past suggests that higher prices could only be days away.