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Gold has had a huge run over the past 100 days reaching record highs above 2012 levels. Investors have been concerned about the possibility of inflation due to the vast amounts of money constantly being printed by the FED in the US. As we speak, another round of stimulus talks is being negotiated in the White House. 

Looking at the past performance of gold over a 100 day bull run, it did not end well. Once the 100 day period passed gold turned bearish 8 out of 10 times. 

The blue line is golds current 100 day bull run compared against previous occasions. History has shown us that the parabolic runs on gold tend run out of steam around the 100 day mark, apart from in 1993 and 2011 (2011 run ended roughly 110 days).

Why would GOLD turn bearish? 

Taking a look at the current positioning across “commercial professional hedgers” you can see they are net short on the precious metal. Commercial Hedgers are considered the smart money. When hedgers become net long to an extreme degree above the green dotted line, then we should be looking for the price of the commodity to rise. The opposite is true when they become so hedged that their position falls below the red dotted line.

Commercial professional hedgers have moved into the extreme bearish scenario. When this happened previously the price of gold declined. 

Furthermore, a survey taken through Bloomberg showed that more than 30% of large US Fund managers thought the metal was overpriced. Their estimations of gold have a fairly positive track record.

Professional commercial hedgers are moving into an extremely bullish scenario on the USD. When this happened previously the USD rallied higher. 

As we know the DXY (USD Index) has been under pressure for some time. The inverse correlation between GOLD and the USD has been in play throughout the USD’s decline. With the major players building heavy long positions on the USD, it could be a matter of time before the currency finds strong support. What we do know is the FED may need to turn the money taps off at some point. When that does occur be ready!

This will provide numerous opportunities across the Forex market with USD pairs stretched to the extreme over the coming weeks.

Stay alert out there traders!

Tony, Forex Kings


Email: forex@thecashkings.com.au

Phone: 1300 201 346

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