Summary
- In August, gold prices reached their highest level in six years. Low interest rates should continue to support gold.
- China's appetite for gold-backed ETFs reached extreme highs too.
- Here are three technical reasons why gold prices should keep advancing in the near future.
- This idea was discussed in more depth with members of my private investing community, The Lead-Lag Report. Get started today »
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.
- Alan Greenspan
Gold is back in fashion this year. Economic and geopolitical uncertainty, coupled with low interest rates, continues to fuel demand.
A recent Lead-Lag Report mentioned that gold ETFs have seen their most significant quarterly inflows since 2016. In August, gold price reached its highest level in six years.
To be precise, the amount of gold held by gold-backed ETFs surged to record highs in September. The World Gold Council (WGC) estimates that about 2.8k metric tons of gold were held in gold ETFs in September, the strongest increase month to month since 2016.
And it’s not only an American story. Funds listed in Europe and elsewhere joined the party as well.
Moreover, China's appetite for gold-backed ETFs reached extreme highs too. The AUM of Chinese gold ETFs sits at all-time-highs around 17 billion yuan, roughly $2.2 billion.
To continue on the same lines, the official Chinese demand for gold didn't stop in the last month. China's gold reserves continued to grow, adding another 95.8 tons to its reserves in 2019.
It appears that there's a strong demand for both paper and physical gold. Here are three technical reasons why gold prices should keep advancing in the near future.
First, let’s have a look at the bigger picture. This is a twenty-year weekly chart beautifully showing the parabolic advance before and after the 2008 financial crisis. What followed is a correction, badly needed from a technical point of view.
But the 2013-2019 consolidation looks like a classic rounding bottom pattern, a bullish reversal pattern known for the fact that it is time-consuming. Well, six years did the job.
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This article was written by Michael A. Gayed. An author on Seeking Alpha and founder of the Lead Lag Report.
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