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February 29, 2024

A Bullish Case For Gold

Frank Cabibi

For some time, gold has been in a rather rangebound market with no real direction to the up or down side. However, after a few weeks of economic data in the US, there could be a potential shift in how the data is interpreted. And this could also strongly support gold bullishness if what I think is happening does happen.

EdgeFinder Analysis

Gold is now a +10 on the EdgeFinder indicating a strong bullish reading for the metal. Today's score is up by three points due to a recent change in retail sentiment and the labor market. Today's unemployment claims came out higher than last week which is pointing to a worse performance in jobs.

Retail sentiment is now a +1 after crowd sentiment shifted to under 40% long. This means that the majority of investors are short the metal while COT shows something different. Last week's report shows a positive change in net positioning for gold while smart money is also slightly selling dollar.

Gold just tested a rising trend line on the 1D timeframe and seems to be breaking higher. On a technical scale, price action actually looks bullish now. On top of this, here are some reasons as to why gold could actually be fundamentally bullish at this time.

The past few weeks, we have seen stubborn inflation levels in CPI, higher PCE, while GDP stalls at 3.2%. I can better visualize this with the kind of data the EdgeFinder is grabbing and weighing in its algorithm. But the threat of lower GDP and higher inflation could lead to stagflation in which the metal thrives.

GU is now at a +9 on the EdgeFinder which is a strong bullish sign. The reasons for a strong bullish bias on this pair are more so because of dollar weakness. With the Fed chairman's testimony and NFP next week, the dollar could be in for a ride.

Stagflation usually comes from a slowdown in economic output while inflation rises. Output is gauged through GDP and labor numbers. We've already seen GDP lower at 3.2% from 3.3% last month. If NFP comes in lower, this will be show an overall slowdown in economic output in the US.

Retail Spotlight

Retail is now short the metal while also being short USDCAD, USDJPY and the indices. Oil continues to remain mixed but is now getting close to majority bought by the crowd. AU and NU are among the highest bought assets right now.

Smart Money Spotlight

Here is gold's COT sentiment vs the crowd. We can see that retail traders are getting further bearish on the asset while institutions have held these positions elevated for some time.

Fundamental Spotlight

The two charts shown above are GDP and CPI values in the US over time. We can see how both metrics have slowed down in the last handful of months. Investors may be looking out for stubborn inflation and a continuation of falling GDP in the coming months. If this happens, gold may be gearing for spikes in demand.

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