Today's key economic data and commentary from the Fed provide meaningful direction to some of the key aspects of the investment thesis for gold. But despite these events being bullish, along with strong physical demand from traditional buyers, short interest and ETF selling remains rampant.
One of the key aspects of the economic outlook that contributed to gold's collapse was the belief that the US macroeconomic outlook was getting good enough for the Fed to reconsider the pace of bond buying. The ISM data released today suggested otherwise, with it seeming that the more recent strength was perhaps payback for temporary factors which restrained activity into the end of the year.
This along with other soggy data has seemingly lead to a more neutral Fed than many may have expected. While many FOMC members have talked about slowing the rate of bond purchases in the last few months, there was no mention of this in the FOMC statement. Indeed, the percieved hawkishness that sparked the initial drop in ETF holdings but in February has completely vanished.
Perhaps it is too early to say, but a weaker data and shifting commentary hasn't stopped short interest mounting in gold or in a further selldown in ETF holdings. Speculative short positioning rose to an all time high last week, even after the sharp drop in the price earlier in the month.
As the chart on the right shows, ETF selling also remains aggressive.
Perhaps momentum itself is the only thing that really matters to these investors. And while prices have consolidated, gold is probably not out of the woods on that basis.
But for my money, the perceived change in the investment thesis based on the macro outlook looks increasingly wrong and this should really be reflected in prices moving up.
