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.