Joy and fear. That’s the message we’re receiving from the gold market these days. The price is now creeping up above the September dollar highs and on its way to the all time highs reached in March last year.
Shorts are feeling increasingly uncomfortable. Longs too. But for different reasons. What’s different this time?
The gold price action has nothing to do with the US. In the past you had an inverse correlation between the dollar and the gold price. This time we observe a certain currency neutrality. So the move in gold is not anti-dollar.
These higher prices are not set by gold bugs, because they don’t have the firepower. Oh well they claim they are in the know, but no secret central bank buying or sovereign fund accumulation is taking place, because they have other business on their plate for the moment.
That means that the money coming to the gold and silver markets is coming from elsewhere. What’s left? The capital pools. There is portfolio allocation by larger investors. This move is being driven by new investment demand. The buying is coming from the gold and silver ETF’s. And these are the vehicles typically used by large investors. Because ETF’s are easy to handle and their substance makes it possible for the big boys to play.
Another trend is helpful. Suddenly central banks discovered that gold is a precious asset, again.
Well, they are less and less involved in the typical carry trade as low interest rates and high lease rates make such trades less attractive. The margins are too small for carry trades to be profitable enough to justify other risks enhanced with this trade as currency risk and others.
Where is this leading us?
We think that the fun is not over.
Gold is trending on his own merits for the moment as new players are pouring in and discovering gold as an asset class, whatever their beliefs may be about currencies.
Shorts are feeling increasingly uncomfortable. Longs too. But for different reasons. What’s different this time?
The gold price action has nothing to do with the US. In the past you had an inverse correlation between the dollar and the gold price. This time we observe a certain currency neutrality. So the move in gold is not anti-dollar.
These higher prices are not set by gold bugs, because they don’t have the firepower. Oh well they claim they are in the know, but no secret central bank buying or sovereign fund accumulation is taking place, because they have other business on their plate for the moment.
That means that the money coming to the gold and silver markets is coming from elsewhere. What’s left? The capital pools. There is portfolio allocation by larger investors. This move is being driven by new investment demand. The buying is coming from the gold and silver ETF’s. And these are the vehicles typically used by large investors. Because ETF’s are easy to handle and their substance makes it possible for the big boys to play.
Another trend is helpful. Suddenly central banks discovered that gold is a precious asset, again.
Well, they are less and less involved in the typical carry trade as low interest rates and high lease rates make such trades less attractive. The margins are too small for carry trades to be profitable enough to justify other risks enhanced with this trade as currency risk and others.
Where is this leading us?
We think that the fun is not over.
Gold is trending on his own merits for the moment as new players are pouring in and discovering gold as an asset class, whatever their beliefs may be about currencies.
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