The fundamental price of gold is calculated using these parameters.
1) NTFS (path of rates) 2) Exchange rate
3) Real yield
4) COT positioning
5) Futures curve (cobasis)
1) NTFS: Near Term Forward Spread
The likelihood of a rate cut in the future increases the fundamental price of gold.
2) Exchange rate
The stronger the USD, the higher the fundamental price of gold. This is because a strong USD will eventually need to go back to its fair value (lower) and that will push up gold higher.
3) Real yields
The fundamental price of gold is high, when we are in a period of positive real yields. This is because the gold price will rise when we go from positive real yield to negative real yield.
4) COT positioning
Speculative long positioning as % of open interest.
When longs are out of the market, that means the fundamental price of gold is high. This is because gold will rise when the longs start to enter the market again.
When longs are out of the market, that means the fundamental price of gold is high. This is because gold will rise when the longs start to enter the market again.
5) Futures curve (cobasis)
Fundamental Price ≈ Spot Price × (1 + Risk-Free Rate - Gold Yield)Gold yield = Cobasis = (Spot Bid Price - Futures Ask Price) / Futures Ask Price
The steeper the gold futures curve, the higher the fundamental price of gold.
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