With the action over the last 24 hours resulting in gold prices remaining near 7-year highs, the durability of the bull case is becoming more apparent. In fact despite a slight tempering of the virus infection rate in China over several days, a lengthening string of new highs in the dollar and positive economic/market sentiment in the US, gold prices this morning are still up $39.00 from last week's close.
While the bull case continues to see purchasing off the ongoing potential for a severe infection inspired meltdown, it also appears as if other buying is being facilitated by what has become a daily Chinese stimulus pattern. More money is also flowing to gold ETF holdings with Deutsche Bank expecting holdings to continue to rise until those derivatives hold more gold than ever! Gold ETFs yesterday increased for the 21st straight day with year to date purchases already 3% higher than January 1st.
In a surprise bullish development overnight Switzerland saw its gold exports to China jump by more than fourfold over the December tally. In short, it would appear as if the focus of the gold trade is becoming less and less on the uncertainty from the virus and is focusing more intently on the potential for "money" to throttle up prices ahead.
Overnight Bloomberg noted significant increases in trading volume of bull call spreads in October gold and large outright purchases of April and July calls. In fact, those noted active option strategies included $1700 calls and $2150 calls which in turn suggest some traders have fairly significant upside targets.
Finally from a technical perspective, traders overnight indicated that the January and early February sideways consolidation balanced an overbought condition and sets the stage for a technically based extension ahead.
In the end, the bull camp has multiple bull themes but longs still need to be careful of a sudden reversal in the event the virus count improvement starts to be accepted.
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Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Financial Services LLC, unless otherwise expressly noted.
