- Spot gold prices overcame resistance at $1,220.30 per oz on February 2, the high from January 23. They then climbed to $1,244.80 per oz on February 8 where resistance was formidable, but yesterday prices had finally mopped up what scale-up selling there was ahead around $1,245 per oz. Prices have since extended this year’s rally to $1,256 per oz.
- We have been saying for a long time that the late-January pullback seems to have been merely a pause in the developing uptrend, which was a constructive development. This latest consolidation seems like another pause so now we see the rally as continuing.
- The stochastics are bullish, which supports the move.
- As we have been saying in recent weeks, there is a wall to climb – the initial breakdown level was around $1,300 per oz when prices fell out of the summer triangle. We would not be surprised by bouts of consolidation on the way up but we see prices returning to last year’s high ground.
The recent lack in gold’s upward momentum suggested overhead selling; now that has been absorbed, the underlying bullish sentiment can carry prices higher, we think, until the next batch of selling dominates.
The funds trading Comex gold were doubly bearish last week: the longs cut 4,149 contracts and shorts added 3,248 contracts. The net long fund position of 109,752 contracts has ranged between 96,550 and 119,155 contracts so far this year and was in the range of 26,560-315,963 contracts last year. Given last year’s high, there is plenty of room for the funds to buy more.
Despite a hawkish Fed, the fact gold prices are running higher in tandem with other riskier assets such as equities suggests there is a sufficient number of investors who are worried enough to take out insurance by buying gold to hedge against corrections in other markets down the road. Insurance must be in place before the corrections start.
The main bullish drivers remain unchanged – they are the concerns about Brexit, European elections, Greek debt and the potential for corrections elsewhere.
Gold ETFs are being bought into again. Holdings stand at 2,032 tonnes, up from a low this year of 1,939 tonnes (see ETF report and chart).