Gold performed extremely well in 2024, repeatedly hitting historical highs, leading some to believe that a correction may occur due to high market positions. However, an analyst believes that this low-key rise in gold has just begun to warm up.

ByteTree founder Charlie Morris wrote, 'Many macroeconomic experts are skeptical about the trend of gold, because they believe that 'positions are too high'. 'But I don't see it that way. Although most investors missed out on this huge gold rally, central banks benefited from it.'

Morris pointed out the technical prospects of gold, stating that it is at a 'significant historic high'. He said, 'Although many people are skeptical about gold, the trend itself is beyond dispute.'

He also pointed out that a 'new era' began in 2006, in which the performance of gold lagged behind the S&P 500 index, but the difference was not significant (excluding dividends).

He said, 'How these two assets balance each other is very clear, which also demonstrates the power of gold as a tool for portfolio diversification. This is obvious.'

He reiterated, 'However, I have read many macroeconomic experts express doubts about the trend of gold, because of 'overly high positions'.'

To support his point of view, he pointed out that the amount of gold ETF holdings is rising again, 'This is a good phenomenon, but there is still a long way to go before you think that gold is an overly crowded trade.'

He said, 'Then there are the longs in the futures market (COT longs), who, although their numbers are high, are not extremely high; and the COT shorts are random. In addition, they only account for a small portion, approximately 8 million ounces, while the longs are 34 million ounces, and the ETF holdings are 82 million ounces.'

Morris said, 'I think many investors have paid too much attention to COT data, although the importance of these data is far less than the flow of funds in ETFs. They see high levels of longs reflecting extremely optimistic sentiment, which may be true at times, but not necessarily. This may just be a truly optimistic case plus a good chart. More importantly, COT only reflects the strength of the trend, and even lags behind the trend.'

He pointed out, 'Futures contracts will naturally offset each other, so longs reflect the size of actively managed funds, most of which are trend followers (managed futures, CTA, macro hedge funds). When the trend is strong, they will buy more gold futures, and sell when the trend is weak. Therefore, long-term futures are associated with trend strength.'

Despite weak investor inflows since 2021, gold has still risen sharply. He said, 'The only credible explanation comes from central bank demand for gold. Although most investors missed out on this huge gold rally, central banks benefited from it.'

He said, 'For the past few months and years, I have been paying attention to this point. Currently, central bank demand is still the single most important factor affecting the gold price.'