Can Gold's Luster be Restored This Summer?
The summer has been a dizzying one for commodities. The last four weeks have witnessed the price of corn soaring toward an all-time high due to withering heat in the Corn Belt states. At the same time, this weather-driven bull market in the grain market, as well as the recent oil price rally, has left investors wondering if this summer might finally be gold’s time to shine.
In the same period that the CRB Commodity Index has rallied off a 52-week low, the price of gold hasn’t made much headway at all. Gold remains stuck in neutral as both professional and retail traders have shown little inclination to bid up prices.
Indeed, gold is already technically “oversold” on a longer-term basis as we’ve discussed in recent commentaries. The 10-month price oscillator for gold has registered its most sold out reading for gold in 10 years (see chart below). While this is an important consideration for serious longer-term investors, it hasn’t done anything to attract the “hot money” crowd.
There are two major components of the gold price. The first one is monetary, the second is emotional. Both have served as powerful catalysts to a gold rally in the recent past. The monetary component is obvious to most observers in that a sizable increase in monetary liquidity tends to increase the gold price. The emotional component is mainly driven by fear – whether fear of a dollar collapse or some other market-related or political fear. Right now the fear element is muted since investors are too busy chasing high-yielding stocks to worry about impending economic collapse. The dollar has actually strengthened in the past year (see chart below), which gives investors even less reason to pile into gold. Until investors are given a serious reason for concern, they are likely to continue ignoring gold.
.......... Cliff Droke
In the same period that the CRB Commodity Index has rallied off a 52-week low, the price of gold hasn’t made much headway at all. Gold remains stuck in neutral as both professional and retail traders have shown little inclination to bid up prices.
Indeed, gold is already technically “oversold” on a longer-term basis as we’ve discussed in recent commentaries. The 10-month price oscillator for gold has registered its most sold out reading for gold in 10 years (see chart below). While this is an important consideration for serious longer-term investors, it hasn’t done anything to attract the “hot money” crowd.
There are two major components of the gold price. The first one is monetary, the second is emotional. Both have served as powerful catalysts to a gold rally in the recent past. The monetary component is obvious to most observers in that a sizable increase in monetary liquidity tends to increase the gold price. The emotional component is mainly driven by fear – whether fear of a dollar collapse or some other market-related or political fear. Right now the fear element is muted since investors are too busy chasing high-yielding stocks to worry about impending economic collapse. The dollar has actually strengthened in the past year (see chart below), which gives investors even less reason to pile into gold. Until investors are given a serious reason for concern, they are likely to continue ignoring gold.
.......... Cliff Droke
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