Gold has rebounded sharply higher in the past month, taking the early lead as 2017’s best-performing asset class. Normally such a big gold surge would require heavy gold-futures buying by speculators. But they’ve been missing in action, barely moving any capital into gold yet. Their collective bets on this metal remain very bearish. Since they are such a strong contrarian indicator, that’s a very-bullish omen for gold.
The sole mission of speculation and investment, and thus all the endless research that feeds into it, is to multiply wealth. Traders can’t effectively buy low and sell high unless they understand what drives the prices of their trades. For years now, gold has had two overwhelmingly-dominant drivers. Their capital flows fully explain the vast majority of all gold’s price action, and thus are exceedingly important to study.
The first is the world-leading GLD SPDR Gold Shares gold ETF. This acts as a conduit for the vast pools of American stock-market capital to slosh into and out of physical gold bullion. Differential supply and demand for GLD shares relative to the underlying gold supply and demand is directly shunted into gold itself. GLD’s physical-gold-bar purchases and sales as its holdings grow and shrink greatly impact gold prices.
This post was published at ZEAL LLC on January 20, 2017.
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