What does increased investor risk appetite mean for the gold price?

A tussle between increased risk appetite and rising yields on the one hand, and geopolitical and trade tensions failing to subside on the other.

What are the factors keeping gold stuck in relatively range-bound movement?

Having surged past the $1500 mark back in August, optimism increased surrounding how much further gold could rise. However, back then resilience in the price of gold came on the back of multiple factors. They included a retreating greenback which aided gold priced in dollars, and its safe-haven status was boosted by a worsening trade war between the US and China. While geopolitical tensions certainly haven’t subsided, both the dollar and indices have recovered since the summer and are on the verge of posting fresh highs. Whether that recovery in equities is due to a positive start to the US earnings season improving risk appetite, yields rising back up reducing the attractiveness of gold’s non-yielding nature, or a possible US-China limited ‘phase one’ deal, gold’s price has been mostly range-bound to the downside, and is lacking sell-side momentum.

While improving investor sentiment, a stronger dollar, and rising yields usually caused gold’s price to fall, rising geopolitical tensions and increased central bank demand for the precious metal has given it a leg to stand on, and prevented that fall from showing increased momentum. Furthermore, in times of uncertainty – and that hasn’t abated even if equities were to post fresh record highs – flocking to gold and increasing portfolio allocation in the safe haven metal has been seen as a must, if the latest positioning figures are any indication.

Gold retail and institutional sentiment

When it comes to trader sentiment, it isn’t a surprise that both retail and institutional traders are holding a heavy long bias. Historically, the bias amongst investors and speculative traders is to hold majority buy sentiment, especially when it makes a move higher as they anticipate further gains.

As of Wednesday morning, retail sentiment is at a heavy long, 74%, up 4% on Tuesday, as short positions dwindle on getting enticed into taking profit. The longer the market consolidates, the more it’ll test impatient traders into limiting their profit-taking and causing some of them to shift from trend trading to range trading.

The long bias also holds true for larger speculative traders, with the Commodity Futures Trading Commission’s (CFTC) latest Commitment of Traders (CoT) report showing the bias at an extreme long 85%, having upped their long positions by 11,583 lots and outdoing a smaller increase in short positions by only 5013 lots.

Graphed below on a weekly chart for gold, retail sentiment (blue dotted line as % long) and institutional sentiment (green dotted line as % long) have both been majority long for the entirety of this year, upping that bias when it made a run towards above $1400, and the latter raising that bias even further towards $1500. Institutional traders were briefly majority short gold in November of last year and by a very small margin, before swiftly shifting back to heavy long bias.

Gold’s weekly and daily chart technical outlook

From a daily point out of view, the technical outlook remains consolidatory, where the bulk of its main technical indicators are neutral following weeks of relatively range-bound movement that has suffered a touch of negative bias. On the weekly outlook, its weekly bull trend line has been broken, though its (weekly) average directional index (ADX) is showing an ongoing propensity to trend, its price is well above all its main weekly long-term moving averages, and its directional movement index (DMI) is positive.

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