It’s been a bad year to be a gold bug: after moving up from $1300 to $1360 through the month of January, gold has dropped sharply through Q2 and Q3 to date, dropping below $1200 as of writing.

While an 8% drop year-to-date is hardly an earthshattering development (lately, that’s been just a bad day for the Turkish lira or a bad hour for most cryptocurrencies!), what’s been particularly frustrating for gold bugs has been the yellow metal’s failure to perform in what “should be” a decent environment for a “safe haven” asset.

The recent escalation in protectionist trade policies; geopolitical tensions with Russia, Iran, North Korea, and more recently, Turkey; and the lackluster performance of global equity markets so far this year (despite continued low interest rates) are all factors that would traditionally be expected to support gold, though to little effect so far this year. Indeed, these factors have made the “safe haven” trifecta of the Japanese yen, US dollar, and Swiss franc the three best-performing major currencies so far in 2018.

Of course, all else equal, the relative strength in the US dollar hurts the performance of gold, which is typically denominated in the world’s reserve currency. The Federal Reserve’s continued interest rate increases also raise the opportunity cost of holding gold compared to interest-paying bonds.

Not surprisingly, market participants have taken notice of gold’s persistent downtrend. The latest Commitment of Trader report from the CFTC shows that sentiment toward gold has become extremely bearish. Speculators as a whole are holding the fewest net long positions in the yellow metal since the start of 2016, while money managers, in particular, have their heaviest net short position in gold on record (back to 2006).

While there is a growing risk that the short gold trade is becoming overly crowded, the price action shows no sign of reversing yet. As of writing, prices are on track to close lower for the ninth week of the last ten. More to the point, gold has sliced through key support in the $1200 area to hit its lowest level in 19 months. With momentum firmly in favor of the bears, sellers may look to target the January 2017 low at $1180 next; if that level gives way, it could expose the December 2016 low near $1120 next.

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