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This could be a huge warning for gold

Lawrence Lewitinn
Talking Numbers
This could be a huge warning for gold

Retail investors are returning to gold. Does that mean it's time to get out?

Though gold is not trading at its stratospheric levels from two years ago – and it’s not even near its prices from this past March – the yellow metal is having a little bit of a rally.

And, though hardcore gold bugs may hate to admit it, “paper gold” may have a little bit to do with it.

“A little bit” is the 1.8 tons of gold that have come back into the SPDR Gold Trust ETF (GLD), the first time in a couple of month. That’s nearly $75.5 million with today’s gold prices. The GLD lets retail investors trade in shares of an ETF backed by physical gold deposits and some cash.

(Read: Gold climbs for 4th day, SPDR posts inflow)

On the other hand, the US Commodities Futures Trading Commission’s (CFTC) weekly commitment of traders report shows “managed money” (hedge funds and the like) are decreasing their long positions and increasing their short positions. From July 30 to August 6, managed money reduced their long positions by 3,510 contracts while they increased their short positions by 13,775. Each contract is made up of 100 ounces of gold.

That means that for hedge funds, short positions have grown $2.26 billion compared to their previous long positions using today’s gold prices. Still, hedge funds are long 105,340 contracts versus short 70,596 contracts for a net long of $45.5 billion in gold.

(Read: Gold settles above $1,330, near 3-week high)

So, with retail investors going longer gold while hedge funds are going shorter, is that a bad signal for gold?

Looking at the charts on gold are Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, and Abigail Doolittle, Technical Strategist at The Seaport Group. They say the precious metal’s recent price actions are pointing gold to its next levels.

Watch the video above to see Ross and Doolittle analyze the technicals for gold.

[Disclosures: Doolittle maintains buy rating on both Gold and GLD with price targets of 1488 and 143, respectively.]


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