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THE BCOM INDEX REBALANCE COULD SPELL BAD NEWS FOR GOLD

The Bloomberg Commodity Index rebalancing window is to run from January 9-15, and Deutsche Bank research analyst Michael Hsueh believes gold XAU= and silver XAG= could be negatively impacted.

For gold, Hsueh notes there rebalancing of 5.5% implies sales of about 1.4 million troy ounces.

"This implies a 1.5-1.8% move in gold based on historical ETF sensitivity," Hsueh says.

On silver, the rebalancing of 5.7% implies about 80 million troy ounces of selling.

But, while the increased supply to the market could be seen as negative, Hsueh notes that pre-positioning may negate some impact.

"The well signalled nature of the rebalancing may mean that a meaningful portion of the flow may effectively be done in advance," Hsueh says.

"If investors anticipate the rebalance, and cover positions as BCOM executes, this would mediate the price impact."


(Samuel Indyk)

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