Gold ETF holdings at 10-yr record – is this a sell signal?
Bloomberg has reported that global Gold ETF bullion holdings are at a record high and have been growing for 17 straight days – also a record run.
So with a surge of buying of Gold ETFs, is the Gold market shooting for the stars, as many are expecting from such manic activity?
Hmm. Here are some extracts from a recent article that give a highly bullish slant on the data. I would say the vast majority of gold traders/investors will go along with this interpretation, especially gold bugs who are perma-bulls. As a matter of record, I disagree with 100 per cent of them!
“Gold inflows are likely to persist,” said Citigroup which expects the price of gold to rally to $1,700 an ounce over the next year. “Markedly weak manufacturing and services ISM data show that the slowdown in global trade is starting to bite the U.S. economy.”
“Gold obviously stands to benefit” if China and the U.S. can’t reach a mini deal this week, said Adarsh Sinha, co-head of Asia FX and rates strategy at Bank of America Merrill Lynch.
With opinions turned decisively in gold’s favor, ……..
Positive sentiment towards gold was also reflected in COMEX net longs, which reached all-time highs equivalent to 1,134t during the month. The volatility skew in the options market was at an all-time high, measured against available data from 2007 onwards. The skew, computed as the difference in premia paid between puts and calls at equivalent strikes, implies that market participants were willing to pay a significant premium for exposure to a higher gold price versus protection against a lower price, suggesting bullish sentiment.
Confirming the bullish tone, global trading volumes remained high across markets,
On the flip side, continued dollar strength and a deceleration in gold consumer demand in India and China could create headwinds.
These are all solid reasons (extreme bullishness) why Gold is destined to decline in my opinion.
One factor backing up my conclusion is the current ‘surprise’ advance in stocks – and the sharp upward reversal of bond yields in the past few days. Not only that, but the commonly-accepted ‘dollar strength’ theme is way out of date and wrong anyway – it topped on Tuesday 1 October and is currently in a third wave down.
Not only that but as I noted recently, the widely-assumed gold and dollar relationship has broken down and they are not automatically moving in opposite directions as is assumed. And Gold COT data still shows a record extreme bull/bear ratio that is typical at market tops.
The latest bout of gold buying was driven by the flight to safety in the summer as stocks plunged. With the current stock recovery, there is evidently less need for such safety and as the dollar declines, so will gold.
Silver is in a slightly different position as it broadly moves with stocks and the outlook for the economy.
Another notable event last week – the ‘yield inversions’ in US Treasuries have vanished with yield curves now sloping up. This is a classic precursor to a genuine economic recession. As I have been stating, I believe it will turn into a depression. But first, stock markets are heading up to their major highs.
Sterling shorts squeezed mightily on Thursday
I have been preparing VIP Traders Club members for a massive reversal in GBP/USD for some time – and it arrived on cue with a bang at 3 pm Thursday just as the Brexit ‘breakthrough’ news emerged. What a surprise!
One of the factors in my bullish analysis was the state of the relative futures holdings between the speculative money managers (hedge funds) and the more sober and sensible commercials (banks. hedgers, mostly those who actually use the currency in commercial transactions).
Remember, I get really interested in a trend reversal when I see extreme positioning by either group – and this chart shows why I am more than a little interested!
chart courtesy www.elliottwave .com
Note the huge swings in sentiment over the years that precisely match the waves in the price. These two groups are mirror opposites – when hedge funds are extremely bearish (as now), commercials are at their most bullish – and that is where major turns up get started.
And today, the number of futures and options held by both groups – hedge funds are short and the commercials are long – is near the record set in 2017 when cable also set a low in the 1.20 area.
From that 2016 low, cable rallied to 1.44 – a very handy move for a swing trader! So will history repeat? That’s where my money is.
This is one of the charts that helped me pinpoint a very high probability reversal at the 1.20 low. The huge momentum divergence on the daily was a strong hint the reversal would be very swift – and so it was/is. And the last two days action is typical of third waves (long and strong) which take no prisoners.
The kiss was highly significant as a solid place to enter longs at low risk. It provided the springboard for the two-day 5 cent advance.
VIP Traders Club members took long positions in anticipation of the surge.
And since we are in the end-game for the Brexit scrap with the UK Parliament holding a highly unconventional meeting today (Saturday), and the US/China trade talks on at the same time, this weekend promises to provide more than the usual excitement on Monday’s market openings.
What if we get a solid breakthrough on Brexit – and as a bonus, warm noises coming from a US/China deal? Seems deals are in the air!
Stocks rally – is my alternate scenario playing out?
Since the major Christmas low, my top option of the rally off it was a counter-trend move with the Dow ATH set in July. The counter-trend move would be followed by a swift move lower. Last time, I laid out my case for an imminent downturn, but was premature (a common affliction!) as stocks rallied hard. But at least, my crude oil forecast last week is proving correct, so one out of two ain’t bad.
I was successful at picking the September high which lead to a huge 1,500 pip dip but since then, the market has been in bounce mode and has highlighted my alternate scenario as a major contender:
It implies a move to a new ATH at my original 28,000 target area.
But next week should be pivotal. Provided the US/China trade talks do not blow up, any agreement is likely to be met with a continued rally surge and if so, I will be looking for a top as it would likely be a buying climax which would likely be swiftly reversed.
Sentiment indicators are already pushing up to near all-time record bullishness. The MSM has been doubtful of this rally but may well see the light if an agreement is forthcoming by Monday. Then, everyone will be on board the bull cart – and provide an ideal backdrop for the top.
The beans are flyin’!
Just to prove I am not narrowly fixated on stocks, currencies and gold, I have been tracking the very interesting Soybean market for the VIP Traders Club. Not too many UK traders know about this very important market – or trade it. But I believe they are missing a great opportunity.
Just like any other ag crop, bean prices have seen some huge swings over the years. But the recent multi-year low of $8 a bushel has reminded me of the 1970s when if the market was in a bull run and prices were advancing strongly, floor traders would cry ” Beans in the Teens!” when it crossed the round-number $10 mark.
Of course, today, trading is electronic, not open outcry of traders standing in the bear pit of a very large ring inside the Chicago Board of Trade. But I believe many traders sitting at their desks will have an excuse to cry out “Beans in the Teens” soon.
This is the ten-year weekly chart showing the very wide swings in different crop seasons
Note the lovely Bean Wedge with five waves with the fifth wave prematurely turning far above the lower wedge line in a latent bullish show of strength. And this week, the market has pushed up past the upper wedge line – the first time it has done that in its history and is thus a notable event.
Not only that but at the May $8 low, I have a good momentum divergence that should ensure a hefty advance with my first major target around the $9.30 area with my $10 mark just above.
In the US northern crop areas, the weather has been difficult for the corn and soy farmers this year with a wet spring and now a major early snow storm predicted. And if the US/China trade talks can get some traction, the current uptrend can be maintained, I believe.
Club members entered at $8.75 area (latest $9.40) and I expect this t be along-term hold.
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