The non-commercial futures and option commitment has been almost exclusively above 80% for a significant portion of 2009. By contrast the Commercial Hedgers have been almost exclusively short virtually the same percentage. Such divergent commitments are not unusual, however, the persistence of such opposing views remain atypical. Although both have recently been reducing their net longs and shorts their existing positions suggest that there are hugely conflicting views as to the short and medium term direction of Gold. The price set up as I see it in the Gold market is as follows. Gold has made a five wave move up from 375 topping at 1227. This would suggest that the most immediate significant move in Gold is in fact down, opening up the possibility of significant measure of retracement.

The rationale for advocating a weaker USD Gold price over the next year is that I believe that the US Dollar will be stronger than many people predict, capping the anticipated outperformance in commodities for 2010. Demand for USD will be strong in 2010 in the event that deleveraging persists over the year with anaemic global economic performance. This has nothing to do with safe haven status as many financial commentators are wont to do, but a flow of funds analysis that highlights the inescapable fact that most of the world’s debt is in fact denominated in US dollars. There is naturally a strong underpin to the demand for US dollars. To reinforce the case the US dollar is the worst performing major currency, except for the Euro, the Pound and the Yen. All of these currencies or currency blocks have their problems, so the unbridled suggestion that the Dollar is doomed to go to zero is at least in the medium term without foundation.

Gold has made solid progress since 2003 with the apex of the move at approximately USD 375.00. A 50% retracement of the move between 375 and 1127 indicates the possibility of Gold moving back to USD 800.