Gold is one of the hottest assets of 2019 with a year-to-date gain of nearly 20% (and more than 30% when priced in other currencies such as the Australian dollar). As I was sifting through various charts and research this weekend there were three gold related charts that stood out to me as best telling the story of where the gold market is at now, and most importantly where it could be going.
Chart #1 - Gold Commitments of Traders
Large speculators in gold futures (CTAs, hedge funds, etc.) are currently at their largest net long position in gold in three years. If we look at the accumulation of evidence there is no doubt that gold is beginning to become one of the new hot hedge fund trades. 300,000+ contracts of large speculators' net length has historically closely coincided with gold price peaks. That doesn't mean it has to crash tomorrow, in fact in all likelihood it WON'T. Instead, it is more likely to digest some of its gains in a range-bound manner, similar to what we saw last Friday.
Chart #2 - Central Bank Gold Purchases/Sales
After being net sellers of gold for decades, global central banks have been steady net buyers of gold for the last nine years and 2019 doesn't appear to be any different.
Chart #3 - Monthly Chart Of The Gold/S&P 500 Ratio
This is the probably the most bullish long term chart of gold out there right now as it shows that a major long term low in the gold/S&P 500 ratio was put in place at .40 in August 2018. This monthly ratio chart is only JUST BEGINNING to break-out. The monthly 14-period Relative Strength Index (RSI) is confirming that a breakout from a rounding bottom pattern is in its early stages with plenty of upside room above. A 12-month target for this ratio between .65 and .70 looks like a conservative upside estimate (this would equate to US$1800-US$2000 gold given that the S&P remains near current levels).
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