The wash-up is that we’ve seen a new ATH in gold (XAUUSD), with the price pushing into $2469 and having the second biggest gain of the year (+1.9%). We’ve also seen new ATHs in XAUJPY, XAUSGD and XAUCNH, with XAUAUD and XAUEUR also looking strong as well – so the momentum in the yellow metal is not just a USD story.
Technically, gold has held a range of $2450 to $2285 since mid-April, but on the day, we see price breaking out topside emphatically, and where a measured move of the range suggests a target closer to $2600. We see that the price has pushed to a 2.11% premium to its 5-day MA, and 2 standard deviations above the YTD average, which speaks to the strength of the move.
A strong US retail sales print saw US Treasury yields rise a touch, which resulted in gold falling $14 to $2429. The selling didn’t last long though, and with the reversal lower in US Treasury yields, the USD found renewed selling activity, with gold seeing that as the point to stage a solid reversal higher.
Looking at volumes traded through the futures exchange, and we can see big accumulation volume into and after the post-US retail sales sell-off. This was then backed by big buying and accumulation flows when gold futures traded through the prior ATH (in front-month futures) of $2454, so one can argue that systematic momentum and trend-following players (CTA’s) have had a huge hand in driving the futures and spot gold moves today.
In the ETF space, on the day we saw the GLD ETF trade 11.048m shares, more than double the 15-day average. Flow-wise, and we can better inflows into the GLD ETF of late and that suggests investors are clearly warming to the evolving investment case.
The options market is also speaking out, with gold 1-week call implied volatility trading at a 1.5 volatility premium to 1-week puts. This is not yet at extreme reads, but the relative demand for short-dated call options is a sign of increasing bullish sentiment. It also results in market makers (who sold the calls) having to dynamically hedge their exposures as the price moves higher – again, that just perpetuates the move in gold higher.
Momentum and options-related flows aside, the question we hear from clients is what fundamentally is driving this move to new highs in gold?
There is typically seldom one reason, but often many factors at play:
There are obviously other factors in play, and gold wears many hats. However, the fundamentals have clearly shifted to offer investors increased reasons to reweight gold holdings in the portfolio, and this has led to price-sensitive funds chasing the upside. And with broad-based positioning and sentiment not near extremes $2500 could well be tested soon enough.
The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.