(Kitco News) - While there have been countless observations that bitcoin is the new gold, one bank has a slightly different take on the two assets, asserting that gold is actually the new bitcoin.
In his latest report, Daniel Ghali, Senior Commodity Strategist at TD Securities, noted that gold has been acting more like bitcoin as its unprecedented rally this summer to all-time highs was never actually based on fundamental drivers.
“A comprehensive flows-based approach doesn't corroborate the last leg of this rally,” Ghali wrote in his report. “There are no shortages of compelling macro narratives that have chased the melt-up in gold over the last few months. Unfortunately, these narratives have not been factually supported by flows.”
Ghali pointed out that funds have been max long since August, and speculative bullish positioning has been largely unchanged since. He also noted that clearing data from the London Bullion Market Association doesn’t point to large-scale buying in over-the-counter markets. At the same time, the pace of central bank buying has slowed; finally, he noted that Chinese demand has also been weak in recent months.
“Shanghai traders have sold nearly 25t of notional gold over the last weeks.
Ghali speculated that gold’s recent run to $2,800 an ounce was more about investors hoarding their gold, so prices rallied as supply was limited.
However, he added that this momentum has now passed, so it's not surprising that gold is seeing some significant selling pressure as investors take profits.
“The rise in USD/US rates doesn't bode well for Western flows. Fund flows are weak,” he said.
Although gold faces some significant headwinds, Ghali noted that gold’s bullish uptrend has a ways to go before it is in danger.
“The melt-up has created a notable margin of safety for macro fund positions, which now hold significant paper profits on their extremely bloated length. Large-scale selling activity from CTAs will only kick off below $2580/oz. Given downside momentum is only likely to accelerate below this threshold, other cohorts will have to do the heavy lifting. Overall, this suggests the most vulnerable cohorts are ETF holders, given their recent inflows and Shanghai traders, who are still holding onto their near-record length,” he said in the note.
