Traders are abandoning bearish bets on gold as the yellow metal surges to all-time highs.

Short interest as a percentage of shares outstanding on the $75 billion SPDR Gold Shares exchange-traded fund, ticker GLD, is near the lowest level since July 2009, according to data from IHS Markit Ltd. Meanwhile, bullish call option volume in the ETF posted its second-biggest jump ever last week before bullion climbed to a record $1,946 per ounce Monday.

What began as a haven bid amid the coronavirus pandemic has been kicked into overdrive by central bank stimulus as slumping real interest rates -- which strip out the effects of inflation -- drive investors into gold. The bullish momentum along with a tumbling dollar has fueled “stunning” speculation in precious metals, according to analysts at Sundial Capital Research Inc.

“The popular narrative is that government monetary support will lead to inflation and currency debasement, so buy precious metals as a hedge,” Sundial’s Troy Bombardia wrote in a note Monday. “Regardless of whether this theory is right or wrong, the fact remains that traders are full-bore bullish on metals.”

Gold prices added as much as 2.3% on Monday as the Bloomberg Dollar Spot Index sank to its lowest level since September 2018, with the greenback falling against all of its Group-of-10 peers. Hedge funds and other large speculators have amassed the largest net-short position on the dollar since May 2018, according to the latest Commodity Futures Trading Commission data. That’s largely because rising U.S. virus case counts coupled with the Federal Reserve’s easing bias have dented the dollar’s appeal as a safe haven, said Commerzbank AG’s Esther Reichelt.

“The prospect of further expansionary adjustments to the Fed’s monetary policy, as well as the search for alternative safe havens are the main driver behind this move,” said Reichelt, a currency strategist.

The demand for gold has been insatiable in the $4 trillion ETF market. Total gold holdings in ETFs climbed to a record last week and posted an 18th consecutive week of inflows, according to data compiled by Bloomberg.
Silver has also got in on the action, with the the $12.6 billion iShares Silver Trust, ticker SLV, absorbing a record weekly inflow.

The flood of cash into gold ETFs is evidence that retail investors are driving bullion’s record-breaking run, according to JPMorgan Chase & Co. analysts. ETFs are a popular choice for individual investors seeking commodity exposure, who might be unable to invest in futures contracts or take delivery of physical gold.

“The buying of physical gold ETFs, a major vehicle used by retail investors, rose steeply in recent weeks,” wrote analysts including Nikolaos Panigirtzoglou in a July 24 note. That makes “this year already the strongest on record with still five months remaining.”

This article was provided by Bloomberg News.