The gold price is booming. As bugs dream of record highs and the collapse of the U.S. dollar, there could be a speculative abandon forming.
Is it the same kind of dangerous bubble that fans of the haven metal see in the U.S. stock market?
Gold Powers Above $1750 As Positioning Gets Stretched
As the Federal Reserve has embarked on a historic monetary stimulus program, gold bulls have driven XAU/USD above $1750.
To reach these lofty heights, speculative traders have piled into the market in droves. When market positioning gets hugely one-sided, the potential for a correction increases. Investors can get caught in a liquidity trap as longs are cut en-masse.
As you can see from the current positioning, gold bulls are in one of the most crowded trades in the commodity sector.
CFTC COT report demonstrates that commercials are extremely short XAU, suggesting they may believe that the risk of a correction and/or the price is exceedingly high.
XAU/USD tumbled for about five years after peak, as inflation stubbornly refused to appear, and the dollar firmed with the rejuvenation of the U.S. economy. Once again, we have a significant economic emergency, and this time the money printing is even bigger. With trillions of digital dollars flooding the economy, XAU bulls believe the deflationary spiral is over. If it’s not, they’re sitting on a major bubble.
Deflation & Speculation: Is The Gold Price Facing A 2013-Style Crash?, CCN, May 21
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