Got Some Gold On Your Mind? Go Gold

Published: Sun, 09/29/19

ARE YOU THINKING ABOUT GOLD?

Gold has got everyone’s attention once again. Last week as prices spiked up again as traders built up another record number of longs or bullish positions in the futures market. EWI reports that managed money accounts based on the commitment of traders report show a new record in bullish commitments towards gold futures. This even as gold prices did not make a higher high this week. This level of optimism is akin to a potential near-term top in the precious metals. It is interesting to see that gold prices have been rising along with a rising dollar. This is rare however the reason behind the move may have to do with falling bond yields. While the dollar is one of the factors behind the price movements and gold the other is real interest rates. Falling bond yields push down interest rates to a point where they fall below inflation, leading to negative real interest rates. This is typically bullish for gold. Similarly if bond prices start falling and interest rates go up it would be considered negative for gold. In my understanding this possibility exists because last year the risk off trade led a lot of money to buy both bonds and gold at the same time. Therefore if a risk off to risk on trade develops then the dollar and bond prices might fall together. This could create an unusual trend where a falling dollar is accompanied by falling gold prices. It will be interesting to watch if this actually happens. The trigger then will then be rising real interest rates. Finally we are entering the festival season in India that usually creates some demand for precious metals. At the same time September to December is also a seasonally bearish period for them.

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Rohit Srivastava
www.indiacharts.com
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