Gold Breakout Sparks Hope for Return of Bullish Investors

Gold has staged its best week since February, reclaiming its 50-day moving average and breaking out of a downtrend that dominated prices since March.

The precious metal gained nearly 7% for the week, with Wednesday's 4% surge being its biggest one-day jump since February. This pushed gold futures to a seven-week high.

Despite this breakout, investor flows into gold have been reversing in recent months. Precious-metals ETF flows peaked at nearly $40 billion in February but fell to around negative $20 billion by Monday, a decline of over $55 billion.

However, longer-term buyers such as central banks and Chinese gold ETFs remain optimistic about the metal's prospects. A World Gold Council survey found that 89% of reserve managers expect global official gold holdings to rise over the next year, while 45% expect their own institutions to buy more.

Some trend followers may even be leaning in the wrong direction, with Goldman Sachs estimating commodity trading advisers are about $9 billion short gold. Under its strongest upside scenario, these funds could swing to more than $10 billion long over the next month, a potential reversal of over $20 billion.