GRONINGEN (MINEWEB) - For the fourth consecutive week gold's net speculative length on the COMEX fell, mostly as a result of the continued liquidation of long positions. This Standard Bank, observed on Friday, is indicative of a considerably less strained market for the yellow metal than was the case a few weeks ago. "Net speculative length (COMEX gold) as a percentage of open interest has come off considerably, currently at 28.0% and below the 5-year average of 29.2% - which could see some consolidation emerge," it wrote. In its Commodity Market Themes note published on the same day, the bank writes, "Last month, we estimated that the gold price at $1,780 would reflect 18 months worth of QE - which was, in our view, a stretch. Our current fair value estimate for gold is $1,740 because we believe that under QE3, gold should reflect around six months worth of additional expansion of the Fed's balance sheet (see Gold price probabilities dated 8 October). We estimate that, given the current size of the Fed's balance sheet, and ignoring any future expansion, gold's fair value at the moment would be $1,705." UBS's Edel Tully, writing today, points out that, when considering gold's room to the upside from current levels, "one factor to bear in mind is that for five consecutive weeks now, Comex specs have been declining. The COTR to Nov 4 shows that net longs tumbled by another 1.50 moz. Since the week of October, net longs have fallen by 6.9 moz, and are some 22.9% below the 2012 high. In our view, this recent washout is preparing the stage for a fresh influx of spec length ahead, largely in expectation of US fiscal issues and political posturing." Another factor worth mentioning in the gold spec pattern over the last five weeks, she says, is the lack of appetite to short the metal. "Over the past five weeks of declining spec net length, gross shorts have increased by a mere 0.6 moz. On the one hand, this limits the potential for a short-covering rally, save for the intraday or daily variety, but more crucially it highlights that the mood towards gold remains quite constructive. Sure, length has been taken off the table but that was predominantly about the US election uncertainty and not an absolute change in gold outlook. The silver market, however, looks rather different, experiencing a rather large withdrawal of support, with net longs declining just over 7%, their biggest weekly decline since early July. Standard Bank points out that the overall decline was largely due to the addition of short positions, which it considered a disconcerting move. "Despite two weeks of strong liquidations, net speculative length remains high (6,200.3 tonnes compared to the 5-year average of 4,933.1 tonnes). As a percentage of open interest, net speculative length eased off only slightly, and remains uncomfortably high at 21.4% (the 5-year average is 18.5%) - still indicative of an overstretched and vulnerable market," it writes. It adds, "Without an easing of this strain, we would be sceptical of the sustainability of any rallies in silver."

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