This is from Citi, they seem to be very uncertain on gold indeed
They title their piece: Gold Not As Weak As It Should Be = Uncertainty & Inflation Fear?
And go on:
- Citi sees gold more as a currency than a commodity (given limited industrial use)
- Gold prices see a good (inverse) relationship with the USD & short end US rates
- Gold is lagging the USD rally/higher rates somewhat, unlike 2014/2015
- A simple market based regression model using these drivers suggest significant downside to gold ahead
- Dissecting these drivers shows that whilst USD and 1y1y rates have contributed negatively to fair value estimates, there is a large residual/unknown driver pulling the other way
- Speculative positioning is still net long gold
- ETF holdings have also seen sticky positions given the price action
They conclude:
- Perhaps investors are holding the yellow metal as an uncertainty hedge (can Trump deliver, upcoming politics, China, Brexit etc.) or maybe as an inflation hedge?
