Nothing lasts forever and this is starting to look true of the multi-year rally in the dollar gold price. Gold is down 5.5% so far this year and is having its worst start to a year for more than 20 years. Furthermore, whilst gold holdings by global exchange traded funds (ETFs) have continued to move higher during others period of gold price correction, this has not been the case this time around. Gold held within ETFs has fallen nearly 7% from the peak seen at the end of last year.
We’ve already heard of several big funds turning more bearish, or at least cutting their substantial gold holdings. More recently, the better tone to the US dollar has played a part in supporting the gold price, but the impact has been far less than historical comparison would suggest as the correlation between gold and the dollar has fallen substantially over the past six months.
The money printing argument for holding gold (you can’t print more of it so limiting supply) has also failed to give the gold price renewed traction. The balance sheets of central banks are still expanding, but not at the pace that was happening before and in more recent weeks the ECB’s has contracted as loans have been repaid. And like it or not, the non-yielding gold has been rapidly outpaced by equities in the past 3 months, leaving gold bulls ever more frustrated. For now, gold looks set to remain below the key 50 and 10 day moving averages (both currently at 1658/56 respectively.