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During the past couple weeks, gold has had the Midas Touch. But we are finally seeing some signs of weakness. After reaching an all-time high of $1,814.95, the precious metal is now at $1,739.00. This has meant losses for commodity-backed ETFs like the SPDR Gold Shares (NYSE:GLD) and the iShares Gold Trust (NYSE:IAU).
In the short-run, there are definitely some headwinds. For example, the CME Group (NYSE:CME) hiked the margin requirements – from $5,500 to $7,425. No doubt, this makes it tougher for speculators to move the price.
Oh, and another drag on the gold price is the changing situation in Europe. So far, it looks like the aggressive bond-buying program is making a difference. Even the short-selling ban should have an impact (although, it is likely to be temporary).
Finally, investment demand has been torrid, as seen with the surge of capital into gold-backed ETFs. There has also been a spike in demand for gold bars and coins (such as from the American Precious Metals Exchange).
All of this has been great for a short-term pop, but it will be hard to keep this up. If anything, the smart money is likely to take profits.
Keep in mind that top hedge fund managers – like Bridgewater’s Ray Dalio and Caxton’s Bruce Kovner – have posted nice gains from gold. However, such investors are wont to sell into strength.
Now, looking at the next six months or so, the fundamentals still look bullish for gold. It seems inevitable that there will be yet another budget battle in November. At the same time, the politics will probably get increasingly volatile in Europe. But in the meantime, it’s probably a good idea to get cautious on gold.
