Gold’s remarkable uptrend, achieving new record highs, has encountered an unusual phenomenon – a lack of interest from investors despite robust technical indicators. This disconnect, where gold remains strong but fails to attract investment, is likely temporary. The current situation, marked by a pullback following hawkish comments from a Fed governor and strong US retail sales, triggered a sell-off in gold futures, dropping prices to around $2,006.
Despite this temporary setback, gold maintains its strength with bullish technicals. The current uptrend, initiated in early October and surging 14.2% by late December, has already marked gold’s first new nominal record highs in several years. Even during the mid-week pullback, gold remained close to its 50-day moving average, a key support level in ongoing uptrends. Additionally, gold continues to fare well against the benchmark US Dollar Index, standing at 103.4.
However, the disconnect between gold’s technical strength and investor interest is evident, particularly in the global gold investment market. Definitive supply-and-demand data, published quarterly by the World Gold Council (WGC), indicates a decline in global gold investment demand in the first three quarters of 2023. While gold-bullion demand from traditional physical bars and coins remained relatively stable, physically-backed ETFs witnessed a significant drop.
Gold ETFs, such as the GLD SPDR Gold Shares and iShares Gold Trust, dominate the gold market and play a crucial role in reflecting investor sentiment. GLD+IAU holdings, representing these major ETFs, declined during 2023’s first three quarters, highlighting a lack of investor interest in gold. The disconnect between gold prices reaching new highs and stagnant ETF holdings raises questions about the sustainability of gold’s current upleg.
Despite the current investor apathy, several factors suggest a potential reversal in sentiment. The US Dollar Index, a key driver for gold futures trading, is showing signs of rolling over into a bear market. Additionally, as the Federal Reserve signals a shift from aggressive tightening to potential rate cuts, lower interest rates could bolster gold-futures buying and drive gold prices higher.
Another factor that may contribute to renewed investor interest in gold is the overbought conditions in US stock markets, which are overdue for a significant correction. As investors seek diversification away from high-priced stocks, gold could regain appeal. The ongoing streak of new record highs in gold, coupled with positive financial media coverage, is likely to rekindle investor excitement, prompting a resurgence in gold investment.
While the current disconnect between gold’s technical strength and investor sentiment may seem puzzling, historical patterns suggest that investors tend to return to gold during sustained uplegs and record-setting rallies. As gold continues its ascent, the virtuous circle of increasing records, positive media coverage, and rising investor interest could propel gold to new heights, with potential benefits extending to gold miners’ stocks.
