Fundamentals are still bullish for gold, but the main constraint remains the lack of policy response.
G old, silver and gold shares are below their falling moving averages, a rare development since 2009. However, signs of improvement have recently been accumulating.
Market positioning indicators have changed dramatically from when gold peaked at $1,900/oz in September last year. Currently, gold bullish sentiment and net speculative futures positions are at 4-year lows. Also, other measures confirm that market participants have shifted to a more sober perspective towards gold: ETF holdings are rolling over and gold coin sales continue declining.
Of course, none of these signs would help precious metals if the fundamentals were turning bearish. However, this is not the case since real interest rates are low or negative on most risk-free assets around the world, yield curves are upward sloped and quantitative easing is on many central banks’ agendas.
True, the dollar is rising, but it is hardly surging.
Our Commodity & Energy Strategy service believes that the main constraint on precious metals is the lack of liquidity as policymakers drag their heels, particularly in Europe. Any signs that policymakers are “catching up” should lead to higher gold prices.