What’s been interesting over the past couple of months is just how frustrating a time it has been for the gold bulls. Both the 20d and 60d moving averages are within 0.5% of the current spot price, not something we’ve seen for a year now. Furthermore, spot has traded within a 6% range for nearly three months. This is a real change for gold, which through most of the credit crisis has been an integral part of the ‘risk-on, risk-off’ ebb and flow. Or in other words, such a period of consolidation goes against the grain of the volatility normally associated with an asset which is all about capital return and no yield.
The interesting point is that once again global ETF holdings of physical gold have been rising for most of the past six weeks and are just below the high for the year, according to data compiled by Bloomberg. Naturally, this is not the complete market, but it does suggest that beneath the recent moribund price action there is a growing belief that the price will move higher. This can also be seen in the weekly CFTC net non-commercial futures data, showing a move higher from the past month’s year lows in long positions. Furthermore gold’s correlation (inverse) with the dollar has been falling of late, reflecting an underlying resilience on the part of the yellow metal to the move to new highs on the dollar index for the year. All this suggests that gold may be down, but it’s certainly far from out.