Gold On Course For New Heights

Here is a quick update on the gold market and my views on the near term future. Since suggesting for various technical and sentiment reasons that gold would see a bounce higher, the price of the previous metal has indeed gained 8% so far.

The short term rally has been sustained and smooth over the past few weeks. It has taken gold from its recent low of $1310 to a recent high of appx. $1410. At this rate, it is fast approaching the resistance level that acted as a ceiling in the range of $1420-$1430 late last year. This was also a multi-decade high and depending on how you measure it (whether inflation adjusted or not) a new record high for the commodity.

That is why it is remarkable that the public outlook for gold is relatively lukewarm. Of course, as you’d expect with any rally of this sort, sentiment has improved. For example, taking a look at the Rydex Precious Metals fund assets, we see that some money has flowed back into this sector:

The above chart compares the total assets of the Rydex Precious Metals Fund (in millions) with the SPDR Gold ETF (GLD) fund. There is a small increase in assets but the fund has yet to even approach the same excitement that it showed in previous instances when the price of gold reached new highs. So retail traders are not acting as if they expect gold to make new highs at this point. And yet, from a technical point of view, this is a real possibility – even if we completely disregard the political turmoil in the Middle East.

Other sentiment measures are indicating a similar shift. That is to say, a begrudging acceptance of the recent rally. But there is no sign of truly over the top excitement or a sense of entitlement for gold bugs. This is why I believe that gold is on course for new heights.

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4 Responses to Gold On Course For New Heights

  1. Michael Bruce says:

    Alot of belief in your comments. I agree about the potential for gold but wonder about the amount of leverage supporting the price.

  2. Bob Smith says:

    How can you separate the increase in funds assets due to inflows from the increase due to rising price of precious metals? In other words, a large portion of the increase in assets could be due to the rising price of the asset, not its quantity. No?

  3. DoctoRx says:

    Agree, Babak.
    No evidence that public jumping back in based on speculative gold stock action.
    And the downbeat forecast from the go-to gold mining stock for Americans, Newmont, will keep more people out when what it shows is how difficult it is to increase production and is therefore supportive of bullion prices.

  4. dj says:

    This trade just keeps on working for me…with Q3 coming…no blow out yet

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