We wrote about the euphoria in gold a few days ago and suggested gold had got ahead of itself. 

Gold is currently trading at 1390, well below the key support at 1400. Let’s see how this plays out, but gold long is a crowded space. Next big support, if, is the 1350 level.

Net non-commercials have been adding to already very net longs. It is very rare to see the crowd being on the right side of the trade for too long. Expect these guys to start trimming if we continue trading below the 1400 level.

As we have been pointing out, the logic for the gold long as an inflation “hedge” is stupid as there is no inflation. Gold as a fear hedge is not a rational trade either, and if you want to hedge fear, gold is not the optimal asset to use.

Currently VIX or similar offers a much cheaper way to hedge a possible fear scenario. 

We remain skeptical of the recent gold rally and feel comfortably short, while the long crowd is figuring out what´s next for gold.

Source, charts by Bloomberg