Gold is targeting $1,150.

2018.8.4
Gold Future (the most traded)
Closed at $1,221.9 (+0.49%) Target to $1,150.0 (-5.89%)
Indices
S&P500 2,840.35 (+0.46%)
G 2y 2.6432% (-0.0202%)
G 10y 2.9488% (-0.0371%)
WTI $68.69 (-1.32%)
Dollar Index 95.161 (-0.01%)

1. Volatilites in the world from trade-war between United States and the rest of the world couldn’t be a momentum for the metal. Unlike many experts who expected the metal would go up with increasing volatilities and risk-aversion in the markets, the metal has decreased continuously, touching $1,210. Now, the price is far lower than $1,250 which was my first target. Looks like there were enough reasons why Gold kept going down. Firstly, US stock market has kept rising unlike the rest of the world, which is reducing risk-aversion in the US markets. Unlike Japan, Europe and China, US stock market has ignored concerns over trade-war. Even if Netflix and Facebook couldn’t meet expectation of the markets, many other giants like Apple, Microsoft or Amazon, fill the hole up. And those under-achievers are also trying to recover their drops. Secondly, it’s possible that Gold already lost status as a safe-asset. Equity and Derivative strategists in global banks like Morgan Stanley or BoA Merrill Lynch are warning about probable plunge of stock market with -15% of NASDAQ in near future. But, I think that even if the plunge comes up in real, the metal couldn’t go up. For example, at July 27 and 30, when NASDAQ went down 1.46% and 1.39% in each day, the most traded future for Gold ended with +0.01% and -0.16% for each day. Strong USD with dollar index higher than 95 and increasing US market yields could lead to an result of that the metal already lost its attractiveness as one of the safe assets. Thirdly, situation of demand-supply isn’t good for Gold too. The demand for Gold during this year has decreased more than a hundred ton compared with the last year, mostly for Gold ETF. It is against the markets’ common-sense about Gold which is one of the most promising instruments for hedging bear-market. On the other hand, short-position for the metal in future market is in highest level since 2006.

2. In theory, the most important factor for the metal is interest rate. Even if Fed is sending messages about easing, gradual rise of Federal Fund Rate will keep going. With the rises, short-term yields which are represented with yield of 2y T-Note will keep rising like the yield did during last tightening time, mid-2000s. Central banks which are trying to change their monetary policies aren’t just US Fed. ECB decided to end their QE policy at end of this year, and BoJ also decided to allow wider band in their 10y Government Bond, from plus or minus 0.1% to plus or minus 0.2%. Even though I keep insisting that there will be no fast rises in long-term yield in Developed Markets, yields of short-term will increase much faster than those of long-term. The rises will be bad news for the metal.

3. In real, the most prominent factor for the metal is strong USD, at least in now. Since June when the index touched 94 Level, movement of the index has been very limited in band between 93 and 95. I believe that the index will go beyond 95 eventually, targeting 97. FX and Rate research analysts, in the brokerages, have expected that USD will enter to bear market with tapering of ECB. But I don’t understand why they are ignoring tightening of Fed will be stronger than that of ECB. Actually, ECB will be remaining their interest rate at zero or minus level for the longest time, with keeping reinvesting their revenues of coupons on government bonds of countries on the zone. On the other hand, US Fed is decreasing their balance sheet and raising Federal Fund Rate continuously. Besides, considering the strongest economic fundamental which is represented with 4% GDP growth in the US, I think EURUSD should be much lower than 1.16-1.17 level. Another points to think about are emerging currencies and JPY which are going through fluctuation. Powerful USD would restart Its rally, and this will lead to additional slump for the metal.

4. There isn’t a signal of reversion in demand-supply side. Let see recent situation of oil market. Every expert in the economic newspaper keeps insisting that price of oil should rise and will reach to $100 in this year. But as I written in report of LG Chemical at July 29, I believe WTI and Crude oil will lean to $60 eventually. Price of the resource didn’t preserve $70s, and is struggling strongly to touch $70 again, even though Hedge Funds have made huge long position in the market. The situation for the metal is different from oil. Real demands aren’t decreasing or increasing. But speculative demands in ETF have decreased, and short-positions dominate the future market. Hedge Funds which have made short-positions have been winning continuously. There is no need to settle the positions now because they have already huge cushion with estimated profits, and with not a signal of reversion in the market. The overall metal markets are giving pressures to Gold too. Copper, Silver, Platinum and all metals, except iron in the US, are going to downside with concerns over trade-war and slowing Chinese real economy. Gold is also one of the metals, so it’s impossible for the metal to disobey general markets’ movement.

5. My second target for future of Gold is $1,150. I set my second target for the metal to $1,150. It’s the simplest conclusion. There aren’t so many things to change from my previous comment.

Mr. Banker, http://markety.tistory.com

 

Gold (Aug 4, 2018).pdf