According to JPMorgan’s Nikolas Panigirtzoglou, retail investors appear to have been mostly behind the recent rally (although the Robinhood army has yet to fully engage), and indeed the buying of physical gold ETFs, a major vehicle used by retail investors, rose steeply in recent weeks, making this year already the strongest on record with still five months remaining. This is shown in the chart below which shows the annual flow into physical gold ETF in metric tonnes.
As a result of this year’s inflow, the stock of gold in ETFs has reached a record high of close to 110 million ounce far higher than its previous high seen in 2012.
This also means that retail investors are becoming more overweight gold and are approaching the 2012 highs. This in turn is shown in the next chart which shows the ratio of the outstanding amount of gold ETFs in dollar terms divided by the dollar value of equity and bond funds worldwide.
This ratio, which can be considered as proxy for the gold allocation of retail investors, is only .03% away from its peak of 0.5% seen in 2012. It remains to be seen whether this previous high gold allocation of 2012 will be breached or not in the current conjuncture. At the moment the chart above implies further room for the gold rally to continue.
Retail investors aside, what about tactical institutional investors such as hedge funds? To gauge the exposure of speculative institutional investors such as hedge funds, JPMorgan looks at the spec position on gold futures reported by CFTC every week. This is shown in the final chart which shows that the spec position in gold futures is some way from its Feb peak, also leaving quite a bit of room for further rally.
JPMorgan’s conclusion: “In all, whether we look at retail investors’ gold allocations or the spec positions on gold futures by hedge funds, we see further room for the gold rally to continue.” And judging by the spike in precious metals in Sunday’s premarket, traders agree.
ANZ has no idea why gold is rising:
Gold prices broke through USD1,900/oz as investors sought safe havens amid rising geopolitical tensions and a weakening economic backdrop.
China retaliated to the closure of its Houston embassy by US authorities by closing the US embassy in Chengdu. The deteriorating relationship has brought into question the longevity of the recent trade deal, with the President Trump saying “the deal means less to me than when I made it”.
However, it’s the fear that the economic recovery is stalling that is boosting gold’s appeal.
Meh. The falling US dollar is the key. End of story.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
