As a general rule, the inflation/deflation war is undoubtedly one of the key drivers in the gold market. As the previous chart showed, the deflationary pressure in Europe is probably causing the divergence between real interest rates and euro gold. This will resolve, either by deflation fading away andpushing gold higher. Alternatively, deflation wins the tug of war, resulting in lower gold prices.
The opposing inflation/deflation pressures are reflected in the futures positions of big investors. As evidenced by Dan Norcini, professional futures trader, in one of his latest market commentaries, in which he explains continued lack of consensus among the big speculators as to the true state of the global economy.
- Those that are bullish and positioned on the net long side (hedge funds) are playing the inflation genie and a slowly improving economy with increased demand for industrial type metals such as copper.
- Those that are bearish are playing the “deflation genie” and a deteriorating global economy accompanied by falling commodity prices along with a strong US dollar.
Dan Norcini writes on his personal blog: “It is this shifting sentiment which is wreaking havoc among some of the trend following systems and has sent some of the individual commodity markets into their current range trade or sideways pattern. Clearly, investors/traders are looking at some signs of economic improvement but they are also seeing geopolitical events and other factors which are making them second guess themselves. There is no clear cut conviction outside of the equity market traders as to which way things are going.”
Source Gold Silver Worlds
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