Here’s the latest number for the reported holdings of the $33 billion gold exchange traded fund SPDR Gold Trust (ticker: GLD), and it’s telling.
Total gold tonnage amounts to 798.85 tons. For perspective, holdings were 798.22 tons at the end of last year.
In other words, over the past six weeks, gold holdings in GLD have increased a mere 0.63 ton.
Yet, the price has gone from 116.17 on Dec. 31 to around 125 today, an increase of 8 percent.
What this tells me is that the biggest portion of gains has come from short covering, not from an influx of fresh cash and eager buyers.
No market can sustain any strong advance without a steady, constant stream of fresh buying.
|The biggest portion of gains in gold has come from short covering, not from an influx of fresh cash and eager buyers.|
Short-covering rallies can be quite impressive and can actually flip many technical indicators positive, so they should not be ignored because of the nature of today’s computer-based trading programs of hedge funds.
Also, all real bull markets start with a wave of short covering as the change in sentiment first frightens the bears who’ve been complacent and riding waves of profits lower as the market descends. Then it attracts bottom pickers who jump on what they hope is the beginning of a bull freight train leaving the station.
The big question is will this buying become more friendly in the sense that it will consist of more new longs being put on rather than old shorts being taken off?
Time makes that clear, but from a technical standpoint, how the market handles overhead chart resistance levels is key.
As more technical levels get violated on the upside, more skeptics commit to the long side.
As more skeptics become true believers, sentiment undergoes a shift in which the longs then become complacent and brim with confidence so that they eagerly buy into each and every dip in price.
Let’s watch to see what gold will do now that it is nearing a key overhead resistance level, especially in light of some of the big moves lower in key gold stocks such as Barrick Gold (ABX), the world’s largest gold miner.