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Gold price driven by a buying frenzy – how long will it last?

Looking at the investor flows in gold in recent weeks, a staggering 28 million ounces (Moz) has entered the market. In the futures market, you can see the scale and changes of the long and short speculative positions. These are published in the commitment of traders data (COT) report every Friday (as at the prior Tuesday).

Gold price and futures with long and short positions

Gold and COT data

(click for sharper image)

The blue line shows the long positions and the red line, the short positions. The gold line shows the dollar gold price.

The longs have risen from 18.8 Moz to 30.6 Moz – a jump of 11.8 Moz.

The shorts have collapsed from 19.2 Moz to 11.1 Moz – a fall of 8.1 Moz.

In addition we can look at the ETF flows. There are many around the world and this black line shows the total holdings. They too have jumped considerably – from 47.2 Moz to 55.9 Moz – a rise of 8.7 Moz.

Gold price and ETF positions

gold and ETF holdings

(click for sharper image)

Generally speaking, the short sellers move quickly because the have to (days and weeks). The longs more measured (weeks and months) whilst the ETF holdings behave like longer term investors (months an years). Naturally the physical buyers are ultra long-term as they rarely sell.

Putting it all together, the investor interest in gold has jumped from 47.4 Moz to 75.4 Moz – a rise of 30

Moz since the beginning of this year. You can see that in the chart below.

Gold and total investor interest

gold and investor holdings

(click for sharper image)

The overlay with the price of gold is significant and a simple regression model suggests that a 10% move in the gold price relates to an 8 Moz shift in investment interest. Gold is up around 20% (that’s another story) since the low. Perhaps it is disappointing that 30 Moz ONLY managed to shift the gold price by 20% when historically, you’d expect to see more.

The main point is that for gold to rise, we need more buyers. In time, they can and will come. But they need an motive. Historically that’s inflation and when it comes, the  growth in the ETFs will drive the price higher. If it doesn’t, expect the shorts to return and the longs to ease back.

In any event, the good news is that the bear market in gold appears to be over.

Charlie Morris

Editor, AtlasPulse.com

Link to this article: : http://www.goldmadesimplenews.com/gold/gold-price-driven-by-a-buying-frenzy-how-long-will-it-last-12828/

Posted by on Mar 14 2016. Filed under Analysis, Gold and Silver Media, Gold News, Silver News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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