The price of gold was supposed to rise, wasn’t it? The US Dollar has been falling for days and weeks. And it has been falling significantly. The “US Dollar Index” currency basket clearly shows this. Since October 10th, we can see the rising Euro vs. the US Dollar in comparison to the falling Dollar Index. The weak US Dollar should actually push up not only the Euro but also the gold price according to the “standard pattern”.
Gold price is trendless
But the price of gold isn’t rising. In the following chart we see the development of gold in US Dollars also since 10th of October. Almost all the time there is a rather tired sideways range. But why? On the one hand, the gold price could/must/should rise in the wake of the weak US Dollar. But there is still the herd instinct of the big institutional investors and speculators. If the risk is high, they go into gold. If it’s supposed to be low, they get out of this safe haven and buy stocks, for example. And the quarterly season in the USA has started relatively well in the last few days. And so US equities have been in pretty good demand in recent days, albeit with low turnover. So now there are arguments for a rising and falling gold price, and so we currently have a draw on the gold market.
The London Capital Group, for example, currently expresses the gold situation as follows (translated): The gold price fell to 1481 Dollars per ounce. Downward risks predominate as investors reduced their net speculative long positions, which reached a three-year high in September. So far, less than 20% of the non-commercial long positions built last year have been closed. This means that there is good potential for a deeper downward correction in gold. Improved US yields and falling inflation are other factors supporting another sell-off of the yellow metal.
Stocks and bonds are currently more attractive
And yes, so let us add. As LCG writes, the yield on ten-year US government bonds has risen from 1.55% to 1.79% since October 10th. Of course, higher bond yields make gold even less attractive as an investment, in addition to rising equity prices. And again about the positions on the futures market that LCG mentioned. The US futures market supervisory authority CFTC regularly publishes the positions of futures traders in various futures contracts, including gold contracts. In the week ending the 15th of October, the volume of accumulated net long positions in gold fell from 310,900 to 288,300 contracts.
So: At the moment, thanks to more attractive equities and bonds, the bubble is out of gold and the downside risks predominate. Even the very weak Dollar cannot help the gold price. But in the big picture, we shouldn’t hide the uncertainties. How quickly can the trade war escalate again, or a new drone attack in the Gulf heat up the situation there and much more? The urge of the central banks to buy more and more gold also remains an important factor in the background. Gold bulls should therefore not give up hope in the longer term.