The price of gold also set a new record in the US dollar, reaching the level of 2000 USD per ounce. The dollar was the last of the main currencies where gold has not yet broken the record in recent months, as it was only from March that the American currency started to weaken, strengthening the gold settled in it on world exchanges.
Looking at capital inflows to the largest gold ETF, the market has been enjoying steady interest since late March. After the first shock caused by the collapse of the financial markets, inflows to GLDs have continued without any significant capital outflows. Gold is likely to be of interest not only to institutional investors but above all to individual investors, who could invest capital in this way. The demand on the part of individual investors could also be proved by the results of gold brokers, i.e. those who trade in bars or coins. This is a period of extraordinary prosperity for them. The open question is, however, how much more money may individual investors spend on precious metal?
Hedge funds on gold contracts listed on the Chicago Mercantile Exchange systematically reduce their exposure to the increase in the price of this precious metal, according to data from the CFTC. This may mean that the biggest players are taking advantage of the bull market of small investors and are realizing profits from the over 2-year upward trend. To see the scale of this phenomenon, let us take a look at the quoted data. As early as February this year, the total number of net long positions among non-commercial investors, i.e. mainly speculators, was over 353 thousand. Meanwhile, it is currently less than 238 thousand contracts. Interestingly, at the beginning of May, the number of short positions alone was about 25 thousand and tripled to 75 thousand in less than 3 months.
It is possible that in this way institutions could hedge their gold exposure on other markets with contracts, or simply not buy this increase and focus on trading for a decline in metal prices or a potential bigger correction.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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