Gold Price Action Indicator Nobody is Watching: Turkish Lira
Updated
Latest CFTC COT positioning data on Gold futures actually shows hedge funds took down long positions, and upped the shorts - albeit very marginally and still net long.
In the retail world, at the very top of the list of largest ETF inflows was GLD at +$3.6 billion for July, bringing the YTD net inflow total to a record $20 billion.
Add in a down dollar and US real rates deeply negative through -1% record lows, and you get gold prices slicing through $1920 prev all time highs and $2000 psychological resistance like a knife through butter.
However, there is another major buyer in the markets - Turkey's central bank, who is going through a currency crisis as we speak, and a Trump-Powell style relationship between the head of state directly intervening in central bank monetary policy. Turkey has been aggressively buying up gold and stocking up its gold reserves, up 3x YoY in first half 2020 as the country faces a serious currency crisis unraveling as we speak - lira hits record lows vs dollar and euro. Prez Erdogan's flawed understanding of basic economics refuses necessary rate hikes to stem the lira's decline, and would be far better off holding fx reserves rather than accumulating gold to combat a COVID hit dead tourism industry. Central Bank of Turkey began aggressively and price indiscriminately accumulating gold reserves, overtaking Russia as the world's largest buyer of gold YTD.
But the lira, which has been a price leading indicator for gold as of the last few weeks' rally, just took a sharp leg stronger vs the dollar (USDTRY ↓). Lira's directional moves have shown to be useful indicators of lagging price action on gold:
So keep an eye on USDTRY for cues on near term cap to gold's recent rally. I guarantee the majority of market participants will not be looking at this indicator.
In the retail world, at the very top of the list of largest ETF inflows was GLD at +$3.6 billion for July, bringing the YTD net inflow total to a record $20 billion.
Add in a down dollar and US real rates deeply negative through -1% record lows, and you get gold prices slicing through $1920 prev all time highs and $2000 psychological resistance like a knife through butter.
However, there is another major buyer in the markets - Turkey's central bank, who is going through a currency crisis as we speak, and a Trump-Powell style relationship between the head of state directly intervening in central bank monetary policy. Turkey has been aggressively buying up gold and stocking up its gold reserves, up 3x YoY in first half 2020 as the country faces a serious currency crisis unraveling as we speak - lira hits record lows vs dollar and euro. Prez Erdogan's flawed understanding of basic economics refuses necessary rate hikes to stem the lira's decline, and would be far better off holding fx reserves rather than accumulating gold to combat a COVID hit dead tourism industry. Central Bank of Turkey began aggressively and price indiscriminately accumulating gold reserves, overtaking Russia as the world's largest buyer of gold YTD.
But the lira, which has been a price leading indicator for gold as of the last few weeks' rally, just took a sharp leg stronger vs the dollar (USDTRY ↓). Lira's directional moves have shown to be useful indicators of lagging price action on gold:
So keep an eye on USDTRY for cues on near term cap to gold's recent rally. I guarantee the majority of market participants will not be looking at this indicator.
Note
Idk why "central banks" comes up as the word "fundamental" on this mis-spell check platform, but replace fundamental with CB
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