It just keeps a goin’ and a goin.

What is happening with the increase in reported gold holdings in GLD seems to be oblivious to what is happening with the gold futures. While Comex gold is stuck in a sideways holding pattern below $1300, Western-based investors continue their attraction to GLD. Today yet another 2.68 tons were added. That is in addition to 2.4 tons added Tuesday and the 2.7 added on Monday.

Total gold holdings are now at 841.92 tons, up 199.55 tons since the start of the year and the highest level since December 2013! That is phenomenal demand. It is this demand which is counterbalancing that extremely heavy long side exposure of the hedge funds in the gold market. As long as this demand stays this strong, the hedge fund longs need have no fear. If it falters however, then and only then will that lopsided long side exposure become an issue.

As noted before, every bit of this is contingent on what happens to the US Dollar. The dovish Fed has given investors every reason to own gold as there is basically no opportunity cost in holding the metal with interest rates in the toilet.

As long as the US Dollar remains on the defensive and cannot clear the 95 level on the USDX chart, it is hard to envision a sharp break in the gold price. Something would need to occur that would alter the current sentiment in regards to the Fed and any potential rate hike for that to take place however. As noted in last evening’s post about the US Dollar – it has stabilized at these lower levels and has stopped going down but it certainly does not seem able to to anything more than oscillate below 95 for the time being. Until it does, gold would seem to be mired in a range as well. As with the Dollar, something will need to occur to shift the sentiment towards gold that currently exists.

In attempting to wrap my mind around what seems more and more inexplicable and more confusing, especially in regards to the commodity asset class in general, I keep returning to the yield curve. For many, many years, this has been my go-to indicator for economic expectations. It has always served me well.