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.
I’ve been making it as obvious as I can for months: Gold to the moon.
MB Fund is long.
revert2mean
Meh. The falling US dollar is the key. End of story.
You’re missing the big developing story: the US is on the verge of taking military action against China in the S China Sea (Spratleys). That’s why our defence minister was called over there to the US in person for an emergency pow-wow. Hold on to your hats! 😬
The US did not recently move the bulk of their navy there for nothing. Wag the dog.
While BRRRRRR, AND no mass liquidation of DJIA, THEN rise.
ashentegraMEMBER
All major currencies depreciating. Can’t simultaneously depreciate against each other, so depreciate against gold.
Savers to be trashed – as usual.
Peachy
Savers have only themselves to blame. Utter morons for thinking they get anywhere by hoarding cash.
Savers had the opportunity to buy gold 10 years ago. Or houses 10 years ago. (And 9 years ago and 8 years ago, etc.)
Instead, they pile up fictional monetary symbols and expect to somehow be better and better off (rather than worse and worse off). Ha!
Rocky Balboa
Yeh true. Inflation is not exactly a new concept, even if you know nothing about monetary policy.
Everything-bears always had access to gold if shares and property looked bad.
DivyaMEMBER
And we have taken that opportunity thanks.
A lot of us don’t view Gold as anything but another form of savings.. especially second gen Australians from India.
Problem is, Gold is still not a roof over your head 🙁 Maslow’s heirarchy of needs. The basics still matter.
Peachy
Well, apply yer bloody book-lernin’ for once! If you wanted (& needed) a roof over yer head, you should’ve bought a bloody roof over your head.
Sheesh!
Such is life
Thats brave of you to admit your indian ancestry on MB!
zaxxonMEMBER
Yeah ’cause the name wasn’t a dead give away was it…
Such is life
Sorry geek, I don’t associate with many indians. So, no…the name isn’t a dead giveaway.
DivyaMEMBER
@Peachy.. yeah financial security is another one on the bottom tier of the Maslows hierarchy.. so thats where you are seeing this issue in society. Where satisfying one of the must haves (roof over your head) necessarily requires us to give up another aspect of basic needs (financial security). Being a debt serf isn’t doing right by children either.. the domestic issues that will spawn from being under financial stress doesn’t solve the problem either.
I actually see those that have taken on debt as having done a deal with the devil (banks). They may walk around for the first 10 years in flash cars living the high life but the day is approaching when the dues need to be paid to the grim reaper.. and the black mark is starting to show up for those people now.
Dominic
But gold is more a cultural thing for Indians, surely? Used for dowries and other such mandatory outlays?
DivyaMEMBER
@Dominic. Yeah culturally it is another store of wealth.. few indians would see the difference between deposits and gold. All I am saying is, it is a deposit culturally… more like a family trust account.
BrentonMEMBER
The gold move started at the end of Sept 18, the current weakening in the dollar doesn’t explain it. The rally started at the same time that the 5Y rallied.
Angus
That’s when the FED gave up on raising rates and normalizing their balance sheet, or stopping pretending to. Then it became “whatever it takes” i.e. trash the currency.
Point Break
Maybe Dalio was right about cash being trash after all. Just in a different context. Trash is cash.
Gold doesn;t always move in lock step with with DXY. But it’s DXY and its monetary plus fiscal settings that matter over the stretch.
Dominic
Yep, if you look at 50yrs of data you’ll find the two are inversely correlated only part of the time. This is because the DXY is more the ‘anti-Euro’. If the Euro is being trashed DXY will naturally strengthen, but if the USD is being trashed at the same time (only less so), gold will also become more expensive in Dollar terms. Dollars are being produced at a much more rapid rate than gold is being mined which is why gold is on a one way ticket. It’s baked in the cake – especially now in an era of deficits 4EVA.
Freddy
DLS, do you have a view on prices decoupling from mining costs? e.g. silver more than double the mining costs. Gold approaching that figure. What are people betting on to push prices so high? …surely not short term high inflation
Dominic
With respect, mining costs are irrelevant. It’s ultimately about relative scarcity i.e.
Precious metals scarce
Fiat currency infinite
Freddy
With respect, my question wasn’t targeted at someone who believes mining costs are irrelevant.
Dominic
Mining costs are irrelevant in this instance whatever you think.
Gold is ‘money’ not a commodity.
Freddy
OMG. I suppose you think it was pure coincidence that gold and silver prices fell down to the cost of production after the post-GFC hyperinflation never eventuated.
Dominic
“OMG. I suppose you think it was pure coincidence that gold and silver prices fell down to the cost of production after the post-GFC hyperinflation never eventuated.”
Yes. The price of anything is what someone is prepared to pay for it. Do you seriously believe that property (for example) cannot fall below ‘cost’? If you do, you’re not very bright.
Rorke's DriftMEMBER
I just wish the takeover of my Cardinal Resources CDV would get a move on. 5m oz proven plus exploration upside in Ghana. Two current bidders still low end and don’t seem to have noticed that gold is rising. This is real gold, let’s go.
Can't Socially Distance
Silver up another 5%
SaCo
I bought close to 1:125. Exchanged gold for silver. Now wondering what to do. When to go to cash?
What’s MB’s view on gold?
10K
I’ve been making it as obvious as I can for months: Gold to the moon.
MB Fund is long.
You’re missing the big developing story: the US is on the verge of taking military action against China in the S China Sea (Spratleys). That’s why our defence minister was called over there to the US in person for an emergency pow-wow. Hold on to your hats! 😬
The US did not recently move the bulk of their navy there for nothing. Wag the dog.
Wow. End of empire vibes right there.
Maybe the USA wants a higher oil price too…
There for war games not war. Though tail wagging dog in US election is always possible.
I’ll buy that.
Trump will throw anything and everything at winning the election, he is deep s#it when he is no longer POTUS.
Dave’s $3K/Oz call looking increasingly likely each week that passes… tis a good time to hold Aussie gold diggers!
I was married to one once — didn’t end well.
Did you get cucked?
@Dom she was obviously too low head grade to be viable
I was only joking – the set-up was too tempting to pass up.
Only been married once and happily at that.
Gold and/or gold equities?
I note ‘extra-terrestrial”s comment got zapped?
While BRRRRRR, AND no mass liquidation of DJIA, THEN rise.
All major currencies depreciating. Can’t simultaneously depreciate against each other, so depreciate against gold.
Savers to be trashed – as usual.
Savers have only themselves to blame. Utter morons for thinking they get anywhere by hoarding cash.
Savers had the opportunity to buy gold 10 years ago. Or houses 10 years ago. (And 9 years ago and 8 years ago, etc.)
Instead, they pile up fictional monetary symbols and expect to somehow be better and better off (rather than worse and worse off). Ha!
Yeh true. Inflation is not exactly a new concept, even if you know nothing about monetary policy.
Everything-bears always had access to gold if shares and property looked bad.
And we have taken that opportunity thanks.
A lot of us don’t view Gold as anything but another form of savings.. especially second gen Australians from India.
Problem is, Gold is still not a roof over your head 🙁 Maslow’s heirarchy of needs. The basics still matter.
Well, apply yer bloody book-lernin’ for once! If you wanted (& needed) a roof over yer head, you should’ve bought a bloody roof over your head.
Sheesh!
Thats brave of you to admit your indian ancestry on MB!
Yeah ’cause the name wasn’t a dead give away was it…
Sorry geek, I don’t associate with many indians. So, no…the name isn’t a dead giveaway.
@Peachy.. yeah financial security is another one on the bottom tier of the Maslows hierarchy.. so thats where you are seeing this issue in society. Where satisfying one of the must haves (roof over your head) necessarily requires us to give up another aspect of basic needs (financial security). Being a debt serf isn’t doing right by children either.. the domestic issues that will spawn from being under financial stress doesn’t solve the problem either.
I actually see those that have taken on debt as having done a deal with the devil (banks). They may walk around for the first 10 years in flash cars living the high life but the day is approaching when the dues need to be paid to the grim reaper.. and the black mark is starting to show up for those people now.
But gold is more a cultural thing for Indians, surely? Used for dowries and other such mandatory outlays?
@Dominic. Yeah culturally it is another store of wealth.. few indians would see the difference between deposits and gold. All I am saying is, it is a deposit culturally… more like a family trust account.
The gold move started at the end of Sept 18, the current weakening in the dollar doesn’t explain it. The rally started at the same time that the 5Y rallied.
That’s when the FED gave up on raising rates and normalizing their balance sheet, or stopping pretending to. Then it became “whatever it takes” i.e. trash the currency.
Maybe Dalio was right about cash being trash after all. Just in a different context. Trash is cash.
Gold doesn;t always move in lock step with with DXY. But it’s DXY and its monetary plus fiscal settings that matter over the stretch.
Yep, if you look at 50yrs of data you’ll find the two are inversely correlated only part of the time. This is because the DXY is more the ‘anti-Euro’. If the Euro is being trashed DXY will naturally strengthen, but if the USD is being trashed at the same time (only less so), gold will also become more expensive in Dollar terms. Dollars are being produced at a much more rapid rate than gold is being mined which is why gold is on a one way ticket. It’s baked in the cake – especially now in an era of deficits 4EVA.
DLS, do you have a view on prices decoupling from mining costs? e.g. silver more than double the mining costs. Gold approaching that figure. What are people betting on to push prices so high? …surely not short term high inflation
With respect, mining costs are irrelevant. It’s ultimately about relative scarcity i.e.
Precious metals scarce
Fiat currency infinite
With respect, my question wasn’t targeted at someone who believes mining costs are irrelevant.
Mining costs are irrelevant in this instance whatever you think.
Gold is ‘money’ not a commodity.
OMG. I suppose you think it was pure coincidence that gold and silver prices fell down to the cost of production after the post-GFC hyperinflation never eventuated.
“OMG. I suppose you think it was pure coincidence that gold and silver prices fell down to the cost of production after the post-GFC hyperinflation never eventuated.”
Yes. The price of anything is what someone is prepared to pay for it. Do you seriously believe that property (for example) cannot fall below ‘cost’? If you do, you’re not very bright.
I just wish the takeover of my Cardinal Resources CDV would get a move on. 5m oz proven plus exploration upside in Ghana. Two current bidders still low end and don’t seem to have noticed that gold is rising. This is real gold, let’s go.
Silver up another 5%
I bought close to 1:125. Exchanged gold for silver. Now wondering what to do. When to go to cash?