The sentiment on gold has swung wildly so far this month, from a euphoric explosion to the upside to fears about a long-term megatop. The Fed offered some support this week to get it back above $2000 but today it hit $2044 only to peel back to $2021.
I think all the elements are in place for a run high in gold:
- Central banks easing
- US dollar falling
- Geopolitics pushing China, Russia and others to shift from Treasuries to gold
- Positive seasonals
That said, you could make the argument that all those things should be in the market already and gold hasn't been able to break through. Moreover, the market is pricing in 143 bps in Fed easing next year without any actual hints of imminent easing so that might be overdone.
But I keep coming back to China and the demand from gold from the retail side. Physical gold there is trading at a premium in China of $20, though that's down from $40 earlier in the year it's still an unusual occurrence and a sign of demand. Chinese investors piled into real estate for the past 20 years but the downturn has them thinking differently and gold is one of the spots where money should flow.
Sentiment-wise, it's still very quiet in the gold market, which should be fuel for the fire if it can really break out but if it doesn't happen in the next month, it's tough to envision it happening at all.
