Following a lackluster few months, gold was back in vogue this week, with the metal trading firmly above $1,220/oz, after languishing in a tight range of $1,190-$1,200/oz for months, sources said.
"Gold is breaking out," one fund manager said, noting that he is relatively bullish on the metal going forward to the end of 2018.
Commerzbank said in a research note published Tuesday that bullion broke the technically important 100-day moving average for a period Monday, climbing to $1,233/oz.
"We still believe that short covering was primarily responsible given that speculative financial investors had built up considerable net short positions before the price rise began last week," the German bank noted.
Another positive for gold was the fact the Exchange Traded Fund inflows continued.
HSBC said data showed gold ETFs added 232,000 oz last Friday, supporting the price.
"Concerns over global stock markets provided the fuel for gold's drive higher. Gold tends to be positively correlated with emerging market currencies, and EM FX gains may have also aided gold," HSBC analyst James Steel told clients.
According to Saxo Bank's research, the most recent Commitment of Traders net-short positioning data (to Oct. 9) showed a 41% increase on the week, to a fresh record of 103,000 lots.
"[This came] just days before the yellow metal jumped by the most since 2016. The fact that so many fresh shorts were caught offside by emerging safe-haven demand helped to explain the surge [started] last Thursday. Short sellers have been challenged following the break above $1,210/oz but long-established bears may not begin to worry before $1,240/oz," Ole Hansen, Saxo Bank's head of commodity strategy, argued.
On the record short fund positioning, Citi strategist Max Layton said that "they are likely still short on the bullion complex today, so the short-covering rally could gain traction." This could add further upside pressure to the gold price.
"Gold prices have rebounded 3% this month to $1,225-$1,230/oz as the confluence of asset market unwinds and escalating geopolitical risks have come roaring to the fore. Our average Q4 bullion price remains $1,225/oz but we continue to favor upside exposure as a tail hedge and we think levels could near $1,300/oz by mid-2019," added Layton.
Spot gold was bid around $1,230/oz as of 1515 GMT Tuesday. The London Bullion Market Association Gold Price, administrated by ICE, settled at $1,229.95/oz Monday afternoon, from a morning settlement value of $1,233/oz.
