Gold is bullish, as long as the Fed is dovish
Where next for Gold
I have been espousing the value of Gold in a low yielding environment for some time now and that condition looks set to continue in current market conditions. However, it is worth bearing in mind that the moves around the FX market at present are mainly driven by geo-political issues, so they could switch on a five pence piece, or on a single tweet. These are sensitive times.
Gold longs overcrowded on Comex
However, Gold's run may be due for a stall. With yields low in the bond markets low Gold's characteristic as a non-yielding store of value has fuelled its recent run up to $1500.This has meant that nearly half the open interest on Comex, the top futures exchange, is accounted for by bullish hedge funds.
On Bloomberg's market live blog the the problem was presented that Gold longs are looking overcrowded and lopsided. This makes further gains for Gold difficult. Check out the historic impact of the 2011, 2016 and 2017 rallies fading when the ratio pushed above 45%
The article makes the point that even though ETF's are supporting prices for now, they are 7% below an all time, which means saturation is approaching.
It's a great article, but ETF's have been steadily growing year on year, so an ETF level that's high is not necessarily a sign of impending doom. Ultimately the path of Gold is going to be moved on the Fed's next move at the Jackson Hole symposium. A bearish Fed, more upside for Gold. A bullish fed and expect some of those crowded longs to exit. The takeaway is that a decent trade could be setting up either way on the Fed's next move.