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Gold Traders Play Waiting Game

Simon Constable

Gold prices slipped Monday as nervous investors stayed on the sidelines and traders groped to find indications of a sustained move.

Contracts for April delivery of gold closed off $1.70 at $650.30 an ounce on the Comex division of the New York Mercantile Exchange.

The bullion exchange-traded funds that hold the metal, iShares Comex Gold Trust (IAU Quote) and streetTracks Gold Shares(GLD Quote), were mixed recently.

"Traders are trying to assess whether the worst is over," says Peter Grandich, editor of the The Grandich Letter, noting that bullion prices have fallen from nearly $690 in late February to a low under $640 before rebounding somewhat last week.

Grandich views the drop in speculative positions on Comex as a positive and fully expects a bounce later this week as it becomes clearer that short-term players have been shaken out. The magnitude of those positions provides something of a contrary indicator, meaning that peaks in futures buying by speculators tend to occur near market tops, he says.

The weaker greenback may also have mitigated the session's softness, as gold prices tend to move in the opposite direction to changes in the value of U.S. currency.

One dollar would buy 117.63 yen, down from 118.23 yen late Friday. One euro was buying $1.3183 vs. $1.3115 previously.

Turning to the miners, Peru's largest publicly traded precious metals miner, Compania de Minas Buenaventura(BVN Quote), announced after the previous close that it had reversed 25% of its hedge book, or the equivalent of 483,000 ounces. The move will mean earnings of the firm will become more sensitive to changes in the gold price.

Investors reacted warmly, boosting the shares 2.5% in recent trading.

A program of buying back hedges is often considered bullish for the market as a whole because the process often involves active purchases of bullion futures. But it can also be viewed bearishly. That's because once a hedge book is reversed, the potential for future de-hedging-related buying is reduced.

Elsewhere in the precious metals patch, JPMorgan was busy doling out downgrades to Harmony Gold(HMY Quote) and AngloGold Ashanti(AU Quote).

Harmony was dinged to a neutral rating from overweight, while AngloGold was clicked down to underweight from neutral. Still the shares were both up modestly in recent action.

In base metals, copper moved ahead by 7 cents to $2.85 a pound on bullish news of imports of the metal into China.