zealllc.com / Adam Hamilton / October 21, 2016
Gold’s early-October plunge on futures speculators’ stop losses being run has naturally left this metal mired in battered technicals and bearish sentiment. But that sharp selloff has already accomplished its rebalancing mission. The excessive gold-futures trading positions that triggered that stop running have already reversed, and the investors fueling gold’s bull are starting to buy again. Gold is green lighting its next upleg.
Gold’s price action in recent years has been overwhelmingly dominated by just two groups of traders. Gold-futures speculators effectively control gold’s short-term behavior, as futures’ extreme inherent leverage gives their capital wildly-outsized influence. And investors, specifically American stock investors buying and selling shares in the flagship GLD SPDR Gold Shares gold ETF, have commanded gold’s longer-term moves.
Plenty of traditional gold investors don’t want to believe this, as it’s seen as paper gold overpowering the real physical market. While the gold futures that unfortunately rule gold pricing are definitely paper gold, GLD truly isn’t. This critical ETF acts as a conduit for the vast pools of American stock-market capital to flow into and out of real physical gold bullion. The interplay of gold-futures and GLD trading drives gold.