I cannot hate the initial call from many investment bank analysts it to sink to $1,000 because, in 2013, I issued a $1,035 bear-call. However, I do ridicule these analysts for unwillingly (either through ignorance or moral hazard) understanding the dynamics of gold .
But in 2014 I turned rather on the precious metal. As readers know, I developed a hybrid approach: on physical bullion while understanding that prices are sentiment drive. It was hard to deny that the longer-term fundamentals for gold were strengthening between global stagnation and misguided central banking policies.
Despite central banks, primarily the , trying to fill in the ever-widening gaps via patchwork, market participants remains highly negative up until late December.
This year, traders saw absolute carnage for risk assets and the strongest demand for gold in years. GLD has seen massive inflows, only second to SPY . IAU has seen inflows everyday this year. The demand has been so strong, BlackRock (which manages the iShares Gold Trust) suspended share issuance.
Secondly, inflows to both popular gold-backed ETFs have not been this strong since the SPX fell 18 percent and the were mere months from starting quantitative easing in 2009. And, we know what happened after that.
Now, the recent move will likely remain volatile as gains on consolidated and traders buy on pullbacks. As you can see in the weekly chart of GLD , the entire move from 2008 to 2011 remained in demand to overbought. If the fund sees a similar nominal gain over the next couple years, traders could see $2,230 for spot gold prices.
Considering that the top three central banks have gone over the deep-end to appease risk assets, we could be seeing a resumption of the gold bull market.
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