FLASH: The pattern set up for Gold looks good, and the Smart Money is betting on a break out in here, as all of our Key indicators have turned Very Bullish.
Gold futures rose to a multi-year high Friday, boosted by expectations of a rate cut by the Fed at its next meeting in late July. Plus, Wednesday afternoon, the Fed gave strong indications that it could cut its benchmark rate later this year,
Financial market traders drove the benchmark 10-yr T-Bond yield below 2%, and indicating the chances of a Fed rate cut on 31 July are now at 100%. Thus, making the USD a less-attractive safe-haven investment,while driving up demand for USD denominated gold.
Friday, August COMEX gold futures settled at $1400.10, + $3.20 or +0.23%
Gold Bulls and Bugs are excited.
For the last 5 years, the precious Yellow metal has been ranged and now has finished about the Key $1,350 oz mark.
This has been a technical ceiling with gold hitting the mark several times only to be knocked back down to earth by the Fed put, and what has been a 1 way bet in stocks for over 10 years now. That set up looks like it has changed.
Gold has outperformed equities by 10% over the past 9 months, and that is with stocks marking all-time highs.
We are seeing a big pickup in demand, as investors aggressively move away from stocks at these marks and buying gold before the breakout.
The smart money is positioning for a weakening USD, with a rate cutting Fed, a G-20 meeting that is likely to disappoint, and an upcoming Presidential election cycle that will generate tremendous volatility. Looks like it may be all systems go for a gold breakout.
The Fed has turned dovish from hawkish in a few months. They changed the language in their statement from “on autopilot” in October, and then replaced that with “remaining patient” language after stocks cratered in December, and in last Wednesday’s statement replaced that language once again and are now “closely monitoring” a global slowdown. This dovish shift pointing to rate cuts in July saw USD dive and gold prices surge above $1,360 oz.
The set up for gold has not looked this positive in several years.
Smart money investors are betting big that gold will break out from these levels, and the move could be very strong.
Traders see coming USD weakness. Hey, when players like Paul Tudor Jones, usually a big equity Bull are calling for $1,750 gold price in the near term investors pay attention.
Making things more interesting is the notion that it may be in President Trumps best interest to hang tough and not do a deal with China at the upcoming G-20 Summit.
The Big Q: What?
The Big A: A China trade deal would be a positive stocks. If Presidents Trump and Xi Ping agree to a deal, it could put the Fed on hold and President Trump may not get the rate cuts he wants now.
So, what I am hearing in the street and that Shayne and discussed this weekend is that smart money is now betting that any trade deal will now be on hold till the Fed cuts rates in July or latest September.
That is good news for Gold Bulls and Bugs
The market now sees a completely dovish Fed and is pricing in a 100% chance of rate cuts in July, with The Big Q now being will it be a 25- or 50-basis point cut. The Fed at this point is nowhere near raising rates. As a result USD looks set to head due South.
Have a terrific week.