Gold's Range Beginning To Grate

Mike Zarembski, Senior Commodity Analyst at DailyMarkets, has noticed that gold's range-boundedness seems to be inducing frustration from gold traders.

“What have you done for me lately?” This seems to be the cry from Gold traders, as the “yellow metal” now seems to be favoring neither bulls nor bears and the market appears to be in a consolidation mode. Looking at the daily chart for April Gold, you see that since October of last year, Gold prices have been caught in a $125 trading range, which is a far cry from the price run-up we have seen through most of 2010.... A look at the most recent Commitment of Traders report shows non-commercial traders adding over 20,000 new net-long positions for the week ended February 8th, increasing their net-long position to 191,281 contracts. This increase occurred just as Gold prices made their near-term lows and put an end to the recent price correction. Although the Specs’ long position is rather large, it is still well below the record 283,462 contracts held back in early October of last year.

As I noted yesterday, a consolidation period does induce that kind of frustration. In the absence of an all-out correction, which would allow traders to cast a run-up as the market getting ahead of itself again, gold's range-boundedness does make things nervy. Gold pausing at this point says its fall run-up was justified. But if it was, then where's the continuation? Why is the gold market yawning at what used to get it excited?

Unfortunately, this refractoriness is characteristic of gold. With the exception of the 2008 credit crunch, the metal has not followed an earlier gain with a nerve-staunching decline. Yes, serious declines can be calming after they're over. Fear is more immediate than nervousness; peril requires action, but consolidation means waiting. So, oddly, gold's solid bull market makes for a more grating waiting than a more conventional upsy-downsy bull market would.

Fact is, the edge goes to the naturally patient. Long-term holders of gold, content to hold on or regularly accumulate as the price keeps rising, definitely do better - especially in the stress department. Thanks to that spurt-and-consolidate pattern, gold not only climbs a wall of worry but also climbs a wall of nerves. The person who eschews trading in favor of phlegmatic accumulation has the edge in gold bull market.