Gold up trend likely for next few months.

The speculative element to golds surge is reflected in the 138% increase attained by speculative net longs in gold futures to a 9-month high of 155,306 contracts (see above chart). Speculative longs as a percentage of total open interest reached 52%, the highest since July, suggesting further upside remains ahead. Interestingly, the record high in golds net speculative longs was reached in December 2007, three months before the metal hit its all time highs. The 3-month lag between golds net longs and multi-year highs also took place in 2006. Thus, even if speculative net longs regain record territory above 200K contracts, prices may have at least 2-3 months of upward momentum. The prospects for $1,200-1,300 gold by end of Q3 remain underpinned by a set of cogent fundamental variables involving currencies, interest rates and the global economy. Meanwhile, even as the divergence between gold and oil begins to fade, any oil-friendly dynamics are seen positive for gold's luster.

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