The price action in gold futures has been poor in recent months. In particular, since making a record high in late April, gold has lost its upward momentum and has trended sideways, i.e. within a range of $3,200 to $3,450.
With that, the precious metal has failed to respond to its ‘usual’ bullish drivers, including: i) The conflict in the Middle East, which would normally be expected to generate a safe haven bid; & ii) the weak dollar, which has fallen to multi-year lows (as the rates market has brought forward the timing of Fed cuts). In response to both events, gold has untypically rolled over, and broken below its 50 day moving average on Friday (FIG 1).
Typically, poor price action on bullish news is a sign of buyer exhaustion and evidence that long positioning has become crowded. Of note, in that respect, investors removed downside put protection in their portfolios from late May through to mid-June (see FIG 2), while it has been ‘the most crowded trade’ for three months in a row, according to the BAML fund managers survey. Elsewhere, and while net long positioning in gold futures has unwound somewhat, measured sentiment readings have stayed at high/bullish levels (i.e. generating a contrarian SELL signal for gold).
Furthermore, from a fundamental perspective, major central banks continue to cut rates, and, as a result, the case for a cyclical upswing in the global economy is building (on a 12 month view). Typically phases of re-accelerating economic activity (i.e. cyclical upswings) create a challenging backdrop for gold (and a better backdrop for industrial/cyclical metals).
We’ll be examining the outlook for gold in more detail in this week’s ‘SHORTview’ publication. To take a free trial of the ‘SHORTview’, sign up for ‘The Tactical Investor’ package, available HERE: https://www.longvieweconomics.com/the-tactical-investor.
FIG 1: Gold futures price (US$/oz), shown with its 50 & 90 day moving averages
FIG 2: Gold put to call ratio (10 week smoothed) vs. gold price (USD/oz)
