After gold price went beyond the consolidation range of $1185-$1215, it has hit its 10-week record high
How long does one have to wait for a good life? If they just wait, it will be long! Gold has shown the best daily results since the referendum on Brexit in 2016. In addition, some speculators and the ETF fans decided to be proactive. Taking an advantage of the biggest net shorts for the precious metal, they started buying it in all forms, which drew the asset beyond the consolidation range of $1185-$1215 and allowed working out the recommendation to by gold inside the range and at its top border breakout.
The gold price surge was supported by the biggest sales in the U.S. stock market and the U.S. inflation rate failure to step away from the target. Both factors can be thought bearish for the greenback, as the S&P 500 supported the foreigners’ demand for the U.S. equities and was the evidence of the U.S. strong economy; and a gradual change of CPI reduces the risks of the Fed’s aggressive monetary restrictions. Especially when Donald Trump call the central bank to be mad. All of this looks natural, however, there is a remarkable thing. As it was at the beginning of October, the trading volume was 12 times more than on average indicated that strong speculative demand for gold by the ETF fans had appeared before the gold price surged. According to Commerzbank (DE:CBKG), the SPDR Gold Shares (NYSE:GLD) holdings of gold had boosted by eight tons after months of decline a day earlier than the 2.5% XAU/USD rally started.
Dynamics of ETF holdings of gold
Source: Bloomberg
It became a new advantage in the argument between the ETF fans and speculators. They have been discussing what came first, the chicken or the egg, for a long time. Does the gold price affect the changes of the specified investment funds’ holdings or is it vice versa? I, personally, believe that it has been a single case in October, and the real market depends on the price, rather than vice versa.
I must admit that it was the best time for the attacks by speculators and the ETF investors: the net shorts for gold as of October 9 were as many as 79,603 contracts, which is equal to 247 tons. Hardly had the stock indexes dropped, when the demand for gold, as the instrument of hedging against the risks amid growing volatility, has surged. That resulted in the highest XAUUSD increase since 2016.
Dynamics of gold price and speculative positions
Source: Bloomberg
I don’t think the S&P 500 can soon restore the uptrend, and increased volatility is a good friend for safe-heaven assets. Especial when there is the U.S. midterm election soon, and the U.S. Department of Treasury can any moment publish the report, officially calling China a currency manipulator.
Diversification of investment portfolios is a good sign for gold. Unless the gold rice goes back into the consolidation range of $1185-$1215 per ounce, the restoration of the long-term bullish trend will be getting more likely. I suggest holding on the positions.