We will let the chart below do most of the talking here but, as one of our friends pointed out recently, we believe that Gold is currently at an important inflexion point.

What the graph below is telling us is that despite the fact that managed (speculative) capital hasn’t been this short on Gold since more than a decade (the red line), the gold merchants seem to be keeping their gold inventories unhedged in a larger proportion.

For clarity, the way to read this chart is as follows:

  • The grey line indicates net commercial gold holdings. A rising trend means more long positions

  • The red line indicates the managed (speculative) money short positions. An upwards trend indicates a rising amount of short positions on gold.

Click on the chart to see a larger version

While the above chart doesn’t provide us with definitive clues on the direction of gold, it does tell us that there is a critical tension building up in the market.

So either the merchants are right to keep their gold inventory unhedged and are anticipating a short squeeze that could trigger a rally in Gold Bullion prices or, alternatively, speculators get their way and merchants will be forced to hedge their positions on the derivatives market which could result in a crash.

Either way, it heralds a potentially big move in the shiny asset.

Gold is one of the investment themes in our Sustainable Real Assets Fund - an investment strategy that is positively correlated with inflation and capitalises on the rising demand/supply imbalances in scarce assets caused by a growing demand in developed, emerging and frontier markets.

To find out more about Silk Invest’s Real Assets Fund, please visit our product page.