We have been writing about gold on several occasions over past weeks. The shiny metal has been showing small signs of life according to us, but has been unable to catch proper bids. It has tried pushing the 50-day moving average on several occasions, but has failed to close above resistance levels many times.
Today something different occurred. Gold started catching bids early in the day and has been showing the first really solid price action to the upside in a long time. The metal is trading above the 50-day average with a big margin and is well above the 1200 resistance.
People are referring to safe haven buyers and other fundamental reasons, but we won’t go into those reasons as we see the move more technical than fundamental at this stage.
GDX (gold miners) trade substantially higher as gold is rallying. Note the big break above the 50-day average. Given how far down this sector has gone, the bounce could continue for a while.
In our previous article we outlined the arguments for the recent equity market sell off by explaining the short volatility crowded trades among investors.
Another very crowded trade that has been gaining traction and investors have deployed a lot of risk into is the short gold trade. Below is the chart showing gold (orange) and the net non-commercial gold futures positions. We can clearly see that investors have been piling into short gold positions.
So far this has been a profitable trade, but as gold breaks up today, the exit might prove to be very tight for those gold shorts wanting to close their positions quickly.
Trading with the crowd can be profitable, but make sure you are one of the first to react when the tide changes.
Source: charts by Bloomberg