Gold and silver prices rallied from their lows Tuesday as investors stayed bullish on the two precious metals. One has to wonder, with gold relatively range bound in recent months, despite being up approximately 17% on the year, how long gold stocks can continue moving higher.
Gold prices were up to over $1240 an ounce and silver was back above $17 an ounce Tuesday. Long positions grew last week as investors bet the metals would rise after the Fed failed to raise rates at its meeting this week. All the technical analysis and back forth on price moves can be overwhelming at times, so let’s take a look at some fundamentals.
Long positions bet on higher gold price
In a MarketWatch article, written by Barbara Kollmeyer, speculative long positioned are reviewed further:
“Michael O’Rourke, chief market strategist at The Closing Print, highlighted this chart, which shows that speculative long positions in gold—basically, bets that prices will rise—are at their highest levels since the summer of 2011…”
I think we all remember how bullish the sentiment for gold was in 2011. Take a look at the below chart:
image source: http://www.marketwatch.com/story/a-pullback-for-gold-is-on-the-way-says-…
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There are facts to back this positive sentiment up. While nothing compared to the streaks in 2010 and 2011, analysts at Commerzbank recently revealed data that showed net long positions in gold on Comex rose for the eighth time in the last nine weeks.
Clive Maund, who blogs at GoldSeek.com and was a Pinnacle Professor for many years, where we featured his analysis back in the mid-2000s, has turned cautious towards the metal. He was recently quoted as writing:
“Gold is now in position for a brutal reaction. While the fundamental trigger for it is not known, it could be the Fed meeting this week.”
source: http://www.marketwatch.com/story/a-pullback-for-gold-is-on-the-way-says-…
The Fed is set to meet today and tomorrow and, although almost no one expects a move, we should be reminded that every meeting is live and the gold bulls or bears will be watching Fed Chair Yellen closely.
Bullion Desk recently relayed some comments from Goldman Sachs, an investment bank that has remained bearish on gold and bullish on the U.S. economy:
“Goldman expects recent and forthcoming US data, supported by easing financial conditions, to result in a more hawkish Fed, higher yields, a stronger dollar and the return of divergence. This in turn is likely to put downward pressure on gold prices towards the bank’s near-term target of $1,100.”
source: http://www.bulliondesk.com/gold-news/focus-goldman-sachs-maintains-short…
On the flip side you have HSBC who recently predicted gold has the ‘potential’ to hit $1,300 this year due to factors including a weaker dollar, global risks and a modest recovery in oil prices.
source: http://www.kitco.com/news/2016-04-26/HSBC-Looks-For-1-300-Gold-Cites-Dol…
A lot of things have the potential to happen.
The bank said in a note that,
“We find two reasons that reaffirm our broadly bullish view on gold. The potential for US dollar weakness ahead, particularly vs the euro, helped by a truce in the currency wars. Gold could also benefit from hedging ahead of the UK referendum on remaining in the EU.”
source: http://www.bulliondesk.com/gold-news/focus-gold-price-could-hit-1-300oz-…
With the referendum not until the end of June, pundits will be able to speculate on that issue for some time. Gold is trading up today ahead of this week’s FOMC meeting. While most do not believe the FOMC will raise interest rates at its two-day meeting, investors will scrutinise the committee’s statement on Wednesday to assess its stance on the US economy and look for any hints on the timing of its next rate rise.
Most gold stocks, including the popular junior ETF, GDXJ, were higher Tuesday. The two most liquid stocks on the TSX Venture were gold issuers and had combined to trade over 7 million shares by 10 AM PST, worth over $3.4 million. What happens with the gold price and the sentiment towards gold in general, will be all important to the current trajectory of the TSX Venture bull market.
This article represents solely the opinions of Alexander Smith. Alexander Smith is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations.
