There is no compelling reward/risk tradeoff in either direction for gold prices.
Gold and silver market positioning reveals no major extremes and plenty of mixed signals:
- Gold: The spot price is hovering around the 200-day moving average, which itself has gone flat after falling for much of 2013. Trading sentiment is neutral at 50%. Net speculative futures positions as a percent of open interest (OI) are stuck below the 30-50% zone common during the bull market and above the 10-20% zone during last year’s washout. ETF holdings and futures market open interest have fallen substantially, but downward momentum is ebbing.
- Silver: Trading sentiment and speculative futures positioning are oversold. The caveat is that there are plenty of “stale ETF longs”. Silver prices peaked more than three years ago at $48.55, versus $19.42 currently. Yet silver ETF holdings are close to an all-time high and futures open interest is at the high end of its four-year range.
Gold and silver prices face fundamental headwinds, but they are only slowly taking shape. Fed normalization, higher real interest rates and a firm dollar will eventually prompt new lows in safe haven precious metals.
In the interim, gold and silver could benefit from a combination of low real interest rates, higher investor risk aversion and a firm euro. Potential drivers include softer U.S. housing data, simmering tensions between Russia and the West over Ukraine, a global equity correction and/or ECB unwillingness to undertake quantitative easing despite near-zero consumer price inflation.
Bottom Line: There is little reason yet to aggressively position in gold or silver, given the absence of a fundamental trend and/or market positioning extreme.