Gold is trading $1285 spot as we write this. It has taken a beating with almost any news short of missile launches sending the metal lower. Whether it be bullish news or bearish, the market wants to liquidate longs now. Strength is sold into by patient longs and weakness is stampeded by momentum lemmings over a cliff.
Several factors suggest we are not done. The Open interest has a ways to go, implying there are longs to sell. The less negative interpretation is that while longs are exiting, new shorts are entering. Even if that were true, the next factor we see says the downside is not capped.
The other factor is what appears to be the beginning of the crowded short dollar trade being unwound, also not helped by Yellen and EOY behavior.
The RSI is nowhere near oversold. For this reason we do not see a sustainable rally unless an exogenous event like a new escalating North Korean threat or some geo-political black swan were to occur. Here are some charts exemplifying our observations.
To boot, many hedge funds close their books at end of November, the rest in December. With commodity hedge funds shuttering for EOY and some permanently, we don't see fresh money coming in. Moves may happen higher, but expect them on lesser volume after mid November.
The good news remains that there is little in the way of resistance if we get a good reason to rally, and we maintain that a move above $1350 will likely propel us much higher. So until next time around, traders should be careful of the chop, and investors should be patient.
<All charts pop for live prices>
Gold Spot 60 minute RSI did not make new lows when the market did last night. This is the only good news and as noted, it is on the 60 minute chart....
Meanwhile the daily is nowhere near oversold.....
The Weekly Spot chart also has a ways to go.....
Finally, the Dec. Futures OI is just turning....
Trump and GOP present a united front on tax cuts, investors get bullish on Japan ahead of election, and EU may offer Brexit compromise.
Trump tax trade
The 10-year Treasury yield rose to 2.348 percent, the highest in two months, as President Donald Trump promoted what he called “the largest tax cut” in U.S. history. The president and Republican leaders put on a show of unity when launching the plan, and stocks surged on hopes that the cuts, which include dropping the corporate rate to 20 percent, will become enshrined in legislation this year.
Data due…
At 8:30 a.m. initial jobless claims, wholesale inventories and the third reading of U.S. second-quarter GDP are all due. Today’s list of Fed speakers includes Kansas City Fed President Esther George at 9:45 a.m., Federal Reserve Vice Chairman Stanley Fischer at 10:00 a.m., and Federal Reserve Bank of Atlanta President Raphael Bostic at 1:30 p.m. The Bank of Mexico publishes its rate decision at 2:00 p.m.
Brexit compromise
European Union officials may be willing to bring forward talks on the transition period for the U.K. after Brexit following British Prime Minister Theresa May’s concessions in her Florence speech, people familiar with the matter said. Brexit Secretary David Davis and EU chief negotiator Michel Barnier will outline progress made in the current round of talks in a press conference later today. May, speaking at an event marking 20 years of the Bank of England’s independence, lauded Britain’s economic model as “the greatest agent of collective human progress ever created.”
Japan bulls
Japanese Prime Minister Shinzo Abe officially dissolved parliament overnight, paving the way for the Oct. 22 snap election. The main opposition Democratic Party has decided to merge with Tokyo Governor Yuriko Koike’s Party of Hope, setting up a two-horse race. Investors are confident that the current administration, riding high in the polls, will be returned and are betting on rising equity prices in Tokyo.
Bonds fall, stocks flat
U.S. stocks approached record highs at the close yesterday while bonds in developed markets slid. Overnight, the MSCI Asia Pacific Index dropped 0.2 percent, while Japan’s Topix index gained 0.7 percent. In Europe, the Stoxx 600 Index was unchanged at 5:50 a.m. Eastern Time and S&P 500 futures were also flat. The U.S. 2-year yield approached 1.5 percent, while West Texas Intermediate was at $52.73 a barrel, the highest level in more than five months.
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