Gold has consolidated after last week’s tumble, which saw the spot price suffer the second-biggest one-day fall of the year. Spot gold is currently 5% below the average for the year to date and only just in positive territory vs. the start of the year. It was back in 2004 that gold was last this weak vs. the start of the year, when it was down 6% in the first half of the year. The interesting thing is that ETF holdings of gold are at the highs of the year, up nearly 4% YTD. There is also talk of large hedge funds having taken out significant positions in gold towards the start of the in the belief that it would benefit from further global turmoil and further quantitative easing from central banks.

In reality though, even though quantitative easing prospects have risen in the US and elsewhere, gold has not benefitted. As we’ve mentioned before, the impact of further QE on currencies isn’t as clear cut as has been the case in the past, with this a world far less awash with under-priced assets vs. 2009 when central banks embarked on QE with a vengeance. Furthermore, the inflationary impact of such measures has not materialised and thus, investors are less convinced that a strong inflationary hedge is required. The upshot is that there are a lot of frustrated gold bulls out there and there remains a risk of capitulation from these positions should they start to lose faith in gold’s ability to reach new highs on a multi-year basis.