The safe-haven status of gold, which has been questioned at various points this year, appears to have been renewed over the past couple of days amid heightened equity market volatility.
For example, the SPDR Gold Shares (NYSEArca: GLD), the largest physically backed gold-related ETF on the market, was trading higher by more than 2% during midday trading Thursday. GLD reclaimed its 20- and 50-day moving averages with a vengeance Thursday, moving above its 50-day line for the first time since the middle of the second quarter.
“Gold rose more than 1 percent to near three-week highs on Thursday, climbing above $1,200 per ounce as sliding global stock markets prompted risk-wary investors to seek out the metal, with a weaker dollar also supporting prices,” reports Reuters.
Investors have turned to GLD as a quick and easy way to gain exposure to gold price movements as they hedge against market risks, help protect their purchasing power in times of inflationary pressures or capitalize on increasing demand from the emerging markets with a growing middle-income class.
Gold Rally Could be Durable
The recent rally in gold comes amid extreme short positioning in the yellow metal and could force traders that short the yellow metal to cover those positions, likely adding to bullion’s near-term upside.
“For the week ending September 25, money managers increased their speculative gross long positions in Comex gold futures by 609 contracts to 98,513, while short positions increased by 1,823 contracts to 182,190. This means that gold’s net short position is 83,677 contracts,” according to CFRA Research. “The gold market could be poised for a short-covering rally, as investors are likely to start closing out their record level of short positions, given gold’s resilience to not break below key levels of support.”
Importantly, gold prices have recently stayed above the mid-August lows and a move further above $1,200 per ounce could trigger more buying.
“But prices have managed to stay above a 1-1/2-year low of $1,059.96 hit mid-August, propped up by limited safe-haven buying at lower levels linked to concerns over economic growth and inflationary pressure from soaring oil prices,” according to Reuters.
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.