ETF and COMEX data show gold’s near-term weakness, but the trend is likely to reverse
NEW YORK (November 12) Gold has lost a lot of momentum following Trump’s electoral victory last Tuesday, with the latest exchange-traded fund (ETF) and COMEX data showing significant liquidations and pullbacks in bullish positioning.
SPDR Gold Shares (GLD), the largest gold-backed ETF in the world, saw its largest weekly outflow in over two years following Donald Trump’s election victory.
GLD recorded an outflow of over $1 billion last week, its largest weekly outflow since July 2022, according to Bloomberg data. Total gold ETF holdings fell 0.4% last week to mark their second straight weekly decline, while spot gold fell 1.9%.
Gold prices remained under pressure on Tuesday morning after breaking below the key $2,600 per ounce support just after 2:30 am EST. Spot gold has oscillated around that level since the break, and last traded at $2,599.95 for a loss of 0.75% on the daily chart.
The yellow metal’s steady decline since last Tuesday evening – and the sustained rally in the dollar, equities, and crypto – has analysts wondering whether Trump’s reelection could mean the end of the precious metals bull market.
Darin Newsom, senior market analyst at Barchart.com, believes this is likely no more than a near-term correction, while the long-term drivers that propelled it to record highs remain in place.
“There is a lot going on in the gold market these days, though I don’t think the market is as bearish as many others are saying,” Newsom wrote on Tuesday. “I’ll paraphrase Mark Twain in today’s discussion of gold, ‘The report of its (the gold market’s) death was an exaggeration.’”
Newsom said that from a technical viewpoint, the December gold contract is just finishing a short-term and relatively minor downtrend on the daily chart.
“Recall the contract had been pushed higher for months due to the uncertainty of the US presidential election and expected Chaos from key global players in an attempt to influence the election’s outcome,” he said. “Long-term investment traders were buying gold as a hedge against investments in sectors across the board, most notably equities. With the uncertainty of the election now behind us, and conciliatory behavior toward those same global players on the horizon with the new US administration once the calendar page turns to 2025, long hedgers have lifted some of those positions.”
“It’s interesting to note total open interest (purple line, bottom study) peaked on October 30 at 584,500 contracts, the same day Dec gold posted its high daily close of $2,800.80,” Newsom pointed out. “Monday evening’s total open interest calculation came in at 540,000 as the contract closed at $2,617.70.”
He also noted that the latest CFTC Commitments of Traders report showed a decline of 23,324 in net-long futures positions for the week ending Tuesday, November 5, the day of the election.
“The net-long futures position of 255,329 contracts was also down 60,000 contracts from its recent high of 315,390 contracts the week of Tuesday, September 24,” Newsom added. “Heading into the last positioning day of the week […] Dec gold is down about $135 since last Tuesday’s close indicating funds have continued to sell this past week. We’ll find out how much with this coming Friday’s Commitments of Traders update.”
Despite these near-term indications of gold’s weakness, Newsom believes the Dec contract could see “a bullish turn in the not-too-distant future.”
“Daily stochastics (a momentum indicator) have dropped below the oversold level of 20%, in position for a bullish crossover that would signal a move to a new minor uptrend,” he noted. “Additionally, implied volatility has dropped to near 14%, an invitation for option traders to possibly get more involved in the market as well.”
Looking at a longer timeframe, Newsom said that the intermediate-term trend on Dec gold’s weekly chart has also turned down.
“This is again due to pressure from investors, both on the investment side and hedge side,” he said. “However, the S&P 500 index is still showing a long-term bearish reversal completed at the end of October, regardless of the move to a new all-time high in early November. This means that once the euphoria/hysteria of the US election wears off, markets may return to previous patterns. With that in mind, the long-term trend of the Cash Gold Index (GCY00) was still up at the end of October, though is also facing a potential bearish reversal by the end of November.”
Newsom cautioned that while the post-election “Trump Trade” has hammered gold hard, the “knee-jerk reaction” in risk assets is likely unsustainable given the new administration’s policies and positions.
“Once the next US inauguration occurs, look for OPEC+ to announce the end of production cuts,” he said, “Likely coinciding with the second official act of the new administration to lift sanctions against Russia.”
Newsom also pointed out that the president-elect favors a weak dollar and very low interest rates. “This could make it difficult for the US dollar index to maintain its recent strength,” he said. “Additionally, it would not be surprising to see China make a move toward taking Taiwan over the coming months. This could collapse the Nasdaq, which would then be expected to pull down the S&P 500 Index.”
“This scenario paints the picture of more Chaos and uncertainty over the coming years, meaning hedgers and investors could (should?) return to the gold market long-term,” he concluded.
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