Guess Who's Buying?

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I’ll warn you right off the bat, I have been waiting to write this piece for the past few days. You see, it’s a gold post, and as much as I try to take a bigger picture view, the trader-in-me still hates writing a bullish piece just as the market is about to have a minor correction. So I often get cute and wait for a dip before I publish.

But the gold decline refuses to materialize and I have decided to just post my piece - hoping I am not top-ticking this recent rally, but fearing it’s probably the surest sign we are headed lower over the short run.

Yet over the long-run, I contend something has changed in the gold market. Something we should all be paying attention to.

Let’s have a look at the trading over the past year. Last November, gold took off and ran from $1,180 to $1,320.

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To some extent, the initial move of November and December might be easily explained. Don’t forget that during this period the stock market was selling off hard and there was a fair amount of fear in the market.

But why hasn’t gold sold off in the past two months as the fear subsided?

You might argue that gold is simply rallying along with the decline in real yields. Powell’s historic flip-flop has certainly caused real rates to decline and help gold.

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However, many market participants believe gold’s price movement is best explained by movements in the US dollar.

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For the first three-quarters of 2018 gold was indeed trading almost lockstep inverse to the US dollar. The US dollar was going up while gold was falling tick-for-tick.

Since October this relationship has broken down and now both securities are heading higher.

The easiest way to visualize this phenomenon is to show some charts of gold priced in other currencies.

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