Why is gold going up?
Inflation, currency depreciation, wars and terrorism, credit bubble, deficits, India, China.....list goes on and on, for those who are looking for reasons, plenty of why this and why that can be found on the web these days.
As a technical fellow, I'm only interested in real numbers. Not numbers released by the government statisticians, but actual data from the markets.
I've been using COT data for a few years now, and many of you are familiar with the following charts. But lately, those who jumped on the COT bandwagon in 2005 have now all but disappeared, because, the gold market is now at levels most of us are not familiar with, and the patterns and behavior of gold in the past four years are no longer predictable as they were. Those who have been trying to pick a top in gold based on past patterns in the last few weeks are simply stunned, and confused. Don't get me wrong, I'm not screaming "to da moon" either, I honestly cannot tell you when gold will top or at what price. As a trader and investor, that is something I do not need to know ahead of time, if an endeavor as such is at all possible.
So, why does gold keep going up?
#1 - commercials net shorts
#2 - OI (open interests)
has not increased despite higher gold prices.
First - there is clearly no panic buying in the futures market, speculation is actually down despite much higher gold prices.
Second - higher gold prices must come from increased physical buying, because it obviously is not showing up in the COT data. This leads us to the next chart
#3 - increased demand in
GLD being a gold trust, must own actual gold bullions, and with volume having gained 100%, total gold in trust should also increase by 100%. Indeed, by checking in at the GLD website : http://www.streettracksgoldshares.com/us/value/gb_value_usa.php
Gold held in trust has increased from 170 tonnes a year ago, to currently 340 tonnes. This effectively elevates GLD as one of the world's largest holder of bullion. China as a nation, only has a reported gold reserve of 600 tonnes.
Gold, like all markets, its price fluctuates based solely on supply and demand. The dramatic increase by investment demand has now placed us in a whole new arena. The gold market is no longer a ping pong match between commercials and speculators, it is now accepted and embraced as an investment vehicle. Question is: is this the end, or just the beginning? Why guess, I prefer to keep it simple by following price action and staying with the trend.
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