Gold Traders Turn Bearish, Time To Watch Dollar and Treasuries

Mark Arbeter

There have been some interesting developments with respect to gold. The $3.2 billion Vanguard Precious Metals and Mining Fund is being renamed the Vanguard Global Capital Cycles Fund.

Back in 2001, Vanguard removed the word gold from what was then its Vanguard Gold and Precious Metals Fund. While it took some time for the bull market to get going, this was basically the low for the metal.

Gold Sentiment

According to www.sentimentrader.com, hedge funds have an extremely low exposure to gold, while at the same time, have an extremely high exposure to the U.S. Dollar. This combination has led to rallies in gold and pauses/corrections in the greenback.

When looking at gold, one must always look at the U.S. Dollar. In my opinion, you buy gold to protect against a deteriorating currency, nothing more, nothing less. One must also keep an eye on interest rates as there is a carrying cost to hold the metal.

In the chart, we can see the huge move in shorter term notes as well as the dollar rally since earlier this year. If these pressures can subside, maybe, just maybe gold can get out of the doghouse.

gold price decline lower year 2018 vs us dollar rally chart bearish

Longer term (weekly chart) it’s interesting to look at the price of gold vs. the 2-year treasury yield. Maybe the conspiracy theorists should look carefully at this chart.

They say the bull market in stocks was caused by the Federal Reserve’s loose monetary policy. Seems to me, that the gold bull market was also caused by the Federal Reserve’s monetary spigot which crushed the greenback. Oh, some are not going to like this conclusion.

gold prices vs fed funds rate chart performance correlation_august 6

 

Feel free to reach out to me at arbetermark@gmail.com for inquiries about my newsletter “On The Mark”.  Thanks for reading.

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The author has a long position in Platinum at the time of publication.  Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.

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