Clearly, the gold market has entered a period of significant two-sided volatility with prices this morning at times $55 below yesterday's high. The expanded volatility is not surprising considering that the gold market to start this week saw one of the most significant inflows from funds over the last 10 years. In other words, funds who have avoided gold for decades seem to see gold now as a necessary component of their portfolios.
Evidence of this surging interest was manifest in last week's new all-time record spec long in futures gold/options positioning with a net long of 421,664 contracts. It should be noted that Monday registered a record single-day options trade and it is clear that traders are now cognizant of the potential volatility and or are attempting to gain leveraged long positions.
At initial price levels today the COT positioning report after the close Friday is likely to post another new all-time spec long with gold prices early today sitting at least $50 an ounce above the level where the "record" was measured. On the other hand, the volume of futures traded over the prior four trading sessions has not been extensive and open interest in gold futures still sits 66,000 contracts below the high posted last month and therefore a technical top signal has not been registered yet.
While it would appear as if the high level of anxiety from the fear of pandemic from yesterday has been toned down seeing the Chinese president delay a parliament meeting in Beijing because of the virus threat in the capital city suggests the initial containment efforts have not contained the virus.
Not surprisingly Hong Kong exports of gold into mainland China fell sharply in January in a sign that the Chinese gold consumer is preoccupied at the same time that the Chinese central bank has bigger fish to fry than building its gold reserves.
Another potential very supportive development for gold is the idea that US treasury yields heading are headed toward record lows as that combined with expectations of further global central bank action should underpin gold prices. A
s a sign of ongoing inflows into gold ETFs increased their gold holdings for the 24th straight session bringing this year's net purchases up to 2.5 million ounces.
Unfortunately for silver ETFs cut their holdings and posted the biggest one date decline in holdings since January 14th.
For the action today we doubt scheduled data will have an impact on gold and silver prices with the coronavirus spread outside of China likely to be the dominating focus. However, traders are on the defensive with several reports of vaccine tests which could certainly end the extreme threat but a vaccine will take time to spool up production and therefore the spread rate in the near term will remain the focal point.
In other words, in the event a credible vaccine is found or thought to be found that could take out significant the risk-off interest in gold.
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