Gold, the fear trade, has become the ultimate greed trade
The shiny metal cracked above $3,500 per troy ounce for the first time ever.
In real-life terms, gold is what you buy when you want to be flashy, or you’ve made a Very Big Mistake you need to make up for.
In investment terms, gold is what you buy when either a) you have deep distrust in the foundations of the global financial system, or b) you have nothing else you want to buy.
As such, a world where traders are fleeing US assets in part because America is at the source of an upheaval in cross-border commerce has been very, very good for the shiny rock that has no yield.
What was deemed a “barbarous relic” by economist John Maynard Keynes set a fresh record high on Tuesday, cracking above $3,500 per troy ounce. Gold is up nearly 30% year to date versus a 10% decline for the S&P 500.
It’s becoming more clear that what started as a fear trade — a move out of gold because of the perceived unattractiveness of everything else — is morphing into a wide-armed embrace of the yellow metal.
The signs:
Gold was deemed the most crowded trade by fund managers surveyed by Bank of America earlier this month.
A particularly voracious appetite for gold by China:
Long positions in front-month gold futures on the Shanghai Futures Exchange have jumped to a record of 124,366.
Less than one-third of the way through the year, net inflows into the Shanghai Gold ETF have already hit an annual record. On Tuesday, volumes in this product topped 77.8 million, the highest since its first day of trading.
Stateside, call options traded in SPDR Gold Shares ETF hit a record last week.
The shiny metal is in rarefied technical air, trading more than 20% above its 120-day moving average, per Brent Donnelly, president of Spectra Markets.
“Prior extensions where gold went 20% above or below the moving average were major turning points, every time. Sample size is only 9, but still,” Donnelly wrote, flagging one exception to this rule. “If you believe we are in a similar monetary reset to 1980, you could argue that another doubling of gold is imminent just like gold doubled after going 20% above the moving average in 1980.”
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