GOLD (XAU/USD) Trading Gold

Can anyone please explain what on earth happened to Gold today, 21 Sep? With equity markets selling off and 2nd wave of COVID gaining momentum Gold should be rocketing up, yet it lost 3% today. Commentators who were predicting gold trading in the range in the earlier morning hours immediately “came up” with the reasoning which in their view was increased demand fir USD due to COVID resurgence, even though everyone perfectly knows it’s the gold that is the safe haven not the USD ffs. Any clues people? Just a manipulation maybe?


When all commentators expect gold to go up you know it’s gonna sell off.

With stock market falling so much gold was sold as players had to meet margin calls

On a longer term basis the euro has the largest speculator long position in history vs the dollar

At some point that had to spill over into dollar buying and therefore gold selling. Quite possible a multi month dollar rally will begin now in the dollar.

Whilst gold has been in a tight range there was no hard and fast rule saying it has to break upwards - I was not in the least bit surprised at the sell off

The price could even move all the way back to it’s 200 week moving average and still be technically sound.

The only thing gold really responds to is negative real rates - and despite all the hoo haa about inflation and expanding Fed balance sheets banks are not lending, people are paying off debt so it looks for now like we have deflation.

Maybe that is what gold is starting to realise.

Finally sentiment is still to bullish generally in gold - it really needs a big sell off to rebalance all this gold excitement.

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Hi John! Thanks for such an in-depth answer. I’m still in the process of deciphering some of it as you seem to be on a completely different level from me)))
My initial thought was the rise in USD/sell off in gold might have to do with traders needing liquidity due to losses, but then this last sell off in stocks had come nowhere close to April levels, had it…?
If you don’t mind me asking how do you monitor the shorts on the Dollar and the real rates??


Ok so first off yes I do think some of the gold selling was to meet margin calls on stock losses - as you said it yourself.

You can follow smart and dumb money positioning via the Commitments of traders reports.

This is a report of futures trading positions and the currency futures for the euro are heavily bias to the long side - the dumb money that is.

As for real rates - this is really a long term macro indicator. A negative real rate would be when interest rates are below the level of inflation.

This is what gold loves more than anything.

The problem with the current environment is we are actually going into a deflation - banks are not lending and so credit is tightening - deflationary not inflationary

There is no doubt gold is in a bull market - but this deflationary wave might well take gold down too.

Its really not appropriate to talk advanced macro economics - I’m far from an expert.

Keeping it in strictly TA terms - gold prior to this sell off was still widely overbought - as you could tell because of the distance between the current price and the long term moving averages .

The next gold upleg is most likely to begin when that gap has been closed alot.

Finally there has been far too much bullish sentiment - everyone from CNBC, robinhood retail traders, and even tuk tuk drivers where I am in Thailand have been talking Gold.

That’s always a big worry.

The time to get real interested in gold is when everyone hates it or starts going short.

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You can find futures COT positioning on Hedgeopedia website.

Or get a subscription to COTbase

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