Gold prices have risen in seven of the last eight trading sessions.
Since the brutal sell-off that gripped the gold market throughout much of the first half of 2013 came to an end at a price of $1179 an ounce on June 28, the metal has rallied 16.6% over the past month and a half to $1375 at Friday's close.
Sterne Agee analysts Michael Dudas and Satyadeep Jain identify seven things driving recent gold price appreciation in a new report.
" We believe improvement in Chinese economic activity, strong physical demand as evidenced by 54% year-on-year jump in Chinese gold purchases in [the first half of 2013], geopolitical tensions in Middle East, soft U.S. inflation data raising concerns regarding tapering, reversal of ETF outflows, physical market tightness, and short covering – especially given record high short contracts on Comex – have propelled gold and silver higher," say the analysts.
Bloomberg, CFTC, Sterne Agee
Given how many are still shorting gold, though, Dudas and Jain argue that further adjustments in positioning could fuel a continued rally.
"We have witnessed strong correlation between net positions in gold & silver at Comex and gold & silver prices," they write. "Net reportable short contracts for gold have dropped somewhat from recent record highs, but still remain elevated. We believe any upside catalyst could lead to short squeeze on Comex and drive gold and silver prices higher."
In a note Thursday, JPMorgan analysts John Bridges and Anant Inani recommended clients buy gold ahead of the annual Denver Gold Forum in late September. The analysts cited news that John Paulson dumped half of his gold holdings in the second quarter, along with the looming threat of labor strikes by South African gold miners, a bullish report from the World Gold Council on physical gold demand, and favorable seasonality in August and September as reasons to hold the metal over the next four to five weeks.
BofA Merrill Lynch technical strategist MacNeil Curry has been bullish on gold, but warned clients in a note Friday to be careful.
"While the bull trend remains intact, with swing targets seen to 1439, we are growing cautious, as the first upside target zone and POTENTIAL topping zone is approaching at 1399/1400," said Curry. "For now, the evidence for a top and turn is not present, but if it starts to materialize, BEWARE. Back below 1320 spells TROUBLE."
BofA Merrill Lynch Global Research, CQG
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