The recent run higher in gold looks set to continue based on the following reasons.
1. There are some very strong seasonals in play with the Chinese Lunar New Year approaching. See chart above. Gold tends to do very well at the start of the year and this point is being confirmed by the rise in ETF flows that are coming in at the start of the year.
2. Gold ETF flows start to rise again after bottoming out.
The holdings in SPDR gold shares, which is the largest bullion backed ETF, grew by 17.2 tons on the first day of this week. That is the biggest amount of inflow since September. The last run higher in gold was driven by these rising ETF levels. This was despite the drop off in physical demand due to COVID-19. So, this means that gold looks set for higher prices based on the rising ETF flows. The ETF flows tend to trend and they also tend to move in tandem with gold prices. Rising ETF flows generally equates to rising gold prices and vice versa.
3. The FOMC minutes show a unified board that is set to approve more easing.
4. Low US rates, high levels of QE, fiscal stimulus via a ‘blue sweep’, and fiat currency debasement all favour higher gold prices.
The timing is an issue here, but the $1900 level looks a key area to define risk. Stay above and buyers are in control. Fall below and seller retake the near term control. It is a good place to define risk.