TLT it's the thing that gets the thing to another thing... where it all begins and ends ... Rinse and Repeat forever
Bonds
NIFTYBANK - "Bonds-Bears-Bats"Two pictures, the big one is intra-day and the PIP is Weekly. Intra-day is picture showing the bearish bat pattern, which moved to its logical down path. Triggered on break of the 0.886 number break. This morning BOJ leaves rates unchanged, no trouble in moving any of the financial markets. The bank that has not rocked any boat. SNB leaves, BOE pauses despite expectation of hike. Markets punish. The much-awaited news of Bond Inclusion is liquidity additive, not sure if they are in short term equity additive. On the aggregate, it should add to the underlying investment pool when the global interest rate differences skew to us. At present with USD Rates of Closer to 6% and our Yields minus the Currency Depreciation, will be the considerations to keep in mind. Timing is important, for today, they are mere headlines, market may treat them at a later date. One dead cat bounce? The big trouble to the Index unfolds 43800-44200 range and base if they are taken out. The large Caps stocks have given away their advantage, while the small caps are prone to profit taking. The Second half of 2023 will go to the nimble and humble traders. Move over Exuberance, Return to Sanity (worth reading the speech form RBI). For the day 44400-44900 would fancy a range. Week-end fear or hopes will drive the last one hour. Dont be influenced by overseas cues for a change.
NIFTY: "Safe Heaven?" - Bond Inclusion. The word safe heaven has not been revisited in the financial markets in the last one year. While in all the bear assault, it used to be either the Japanese Yen, Swiss Franc, the Gold or the Bonds. For various reasons, Japanese Yen it at its low. Swiss Franc Post the pause, sold off piercing the 0.9000 mark. Gold is in its own journey, not compensating for the inflation adjusted returns. Less said better about the bonds. It is going to be third year in negative returns US 10 Y hits 4.50%. It is not about pause, the good news is greeting negatively, no recession means higher for longer. WSJ comments that it is time to forget low rates, prepare for higher rates as new norm. JP Morgan reports about inclusion of Indian Bonds IBX coming from June 2024, ideally should be a positive development. It would bring more inflows and that can be a positive factor for the currency. How much of that shift impacts the balance between equity and debt needs another drill down from the total allocation. Safe Heaven is the word that is doing rounds in the spat between Canada and India, any negatives, bull hate, bears embrace. Any gap down today and in-ability to close that gap is a huge bear signal. Additional factors to keep in mind, if one were to infer negative global cues impacting local. Dax is on the verge of break down, Korea and Dow are showing potential Head and Shoulder Pattern. No sin in taking profits off the table and either take light position or stay away. October favours the bears. Few places to hide means, few decisions needed to take. The Graph Retracements are plotted, from the base to the top 0.236 comes around 19400 and from recent base around the 19300 the 0.50% retracement is yesterday low and the 0.618% retracement is 19591. This ideally should hold. This time frame of the graph shows, evening star. The Advance block after posting the fourth one, now erodes half of the second bull candle. Week-end to aid some recovery? Bulls can hope only if we close today above the 19880. Else call writing at appropriate strike or some hedging is warranted. For the day 19630-19830 range is apt.
T-BOND FUTURES, Massive Double-Bottom-Formation, BREAKOUT-Setup!Hello There!
Welcome to my new analysis of T-BOND FUTURES. Within recent times momentous changes emerged within the whole global financial markets as determining factors such as increased consumer demand expenditure and a decreased U.S. CPI have confirmed an important strengthening of the DXY, the U.S.-Dollar Currency Index moving along together with a major uptrend within the bonds. As the bonds market is not about to reverse within the recent times combined with the fact that the DXY stays within a continued uptrend these are factors that I considered within my recent analysis of T-BOND FUTURES as they offer an important view about what is likely to happen next.
Major Double-Bottom Indications and Upcoming Price-Action-Determinations:
When looking at my chart now T-BOND FUTURES are forming a major formation here, which is a substantial double-bottom formation with the first bottom already being completed and the second bottom reaching the major support zones with a high potential to bounce again. Such a double bottom formation indicates a continued demand and bullish expansion volatility once it has been completed within the schedule. Now as T-BOND FUTURES approach the major supports once again this means that the final completion of the whole double bottom is not far away especially once T-BOND FUTURES move forward with the final breakout above the upper boundaries to complete the massive double bottom formation with a breakout above the neckline with an upwind support determined by the 50-EMA and the 35-EMA.
Determined Target Zones and Upcoming Perspectives Together With the Market View:
The first confirmation is going to emerge once the breakout above the descending resistance line, in combination with the 50-EMA as well as the 35-EMA has shown up. The second confirmation and therefore the finalization of the whole double bottom formation is going to emerge once the final breakout above the upper boundary neckline of the major double bottom formation has shown up, this is going to complete the whole formation and is going to activate the final target zones as marked. Especially, with a further bullish momentum and uptrend preceding within the DXY and the bonds market such a major breakout possibility increases more and more.
The first target zone will be within the 151'05 area, and the second target zone will be within the 172'19. A continued momentum within bonds and the DXY that is accelerating and increasing with the higher highs to be formed is going to determine a fast uptrend and reaching of the targets.
In this manner, thank you everybody for watching my analysis of CHFAUD. Support from your side is greatly appreciated.
VP
[STUDY] Bond Rates VS Real RatesSplit view showing the previous real rate of Bonds study along now with the actual Bond Yields. This is to gain insight into Demand dynamics for Bonds and what happens to yields when real yields are positive (expectation is that positive real yields will increase demand, reducing supply, and allowing Treasury to increase Bond prices and reduce yields.
[STUDY] Real Rates of BondsA study showing the real rate of returns on the various US Treasuries. Calculated by subtracting the YoY Inflation Rate (released monthly) from the Yield of the Bond. Real Fed Rate also shown for reference. Above 0 makes Bonds and Savings more attractive, aka more Demand for them. Price may increase and yields decrease, encouraging selling. Below 0 provides negative real return, making Bonds and Savings accounts unattractive, reducing demand. Price may decrease and yields increase to stoke demand.
Bitcoin Has Absorbed $26,500 but What's This?Traders,
In my last post I stated that BTC must absorb the price of 26,500 for the bulls to come back out and play again. It did. Now, we are running into the 50 day moving avg. which is acting as resistance and should give those of us seeking re-entry into longs a bit of time to make those entry decisions.
However, I spotted something sus on the U.S. treasuries chart and it seems that nobody is really talking about this. Both the 10yr and the 2yr experienced a massive spike! What caused this? TBH, it is causing me some hesitation. Could this be pre-indicative of a credit event of some sort? Thoughts, links, data are appreciated in the comments below.
Stew
MACRO MONDAY 12 - Positive MOVE IndexMACRO MONDAY 12
A Positive MOVE Index - TVC:MOVE
The U.S. Bond Market Option Volatility Estimate Index – the “MOVE” is similar to the VIX volatility index that lets us know when volatility/uncertainty is high or low in the stock market by monitoring options contracts. Instead the MOVE measures how much investors expect bonds prices to fluctuate in the future. The bond market is particularly sensitive to changes in interest rates thus the MOVE also can also advise of expectations of future interest rate volatility.
The MOVE index calculates the implied volatility of U.S. Treasury options using a weighted average of option prices on Treasury futures across multiple maturities (2, 5, 10, and 30 years). It reflects the level of volatility in U.S. Treasury futures.
When the MOVE Index is high, it means investors are worried and expect big price swings, which can be a sign of uncertainty or instability in the financial markets. When it's low, it suggests that investors are more relaxed and don't anticipate significant price movements.
In essence, the MOVE Index helps us gauge how jittery or calm the financial markets are by looking at the expectations of future price changes.
The MOVE Index can help inform us of the following:
1. A potential flight to safety: When the MOVE or Bond Option Market Volatility increases this can be a signal of a flight to safety as people exit riskier assets positions such as stocks and reallocate funds to less riskier government backed assets such as Bonds.
- The chart illustrates that increases in bond volatility
negatively impact the S&P500.
2. Future Interest Rates: By capturing investors’ expectations of potential future fluctuations in interest rates, the index serves as a proxy for the bond market’s overall sentiment regarding future interest rate movements.
- The MOVE can provide insights into the bond
market’s expectations about future interest rate
volatility, thus providing a heads up of upcoming
change to future interest rates.
The importance of the MOVE index lies in its ability to provide insights into the bond market’s expectations about future interest rate volatility and market volatility.
The Chart
With an understanding of the MOVE Index we can now dive into the chart and the implications we can draw from it;
- Above the 85 level is above average bond market
volatility and below the 85 level is below average
bond market volatility.
- Historically when the MOVE Index increases higher
than the 126 level it has resulted in significant
S&P500 price decline (red on chart).
- Conversely when we are below the 126 level this
has corresponded with positive price action for the
S&P500 the majority of the time (green on the
chart). This makes sense as a MOVE below the 126
level would suggest the bond market volatility is
reaching down to the average 85 zone or under
suggesting stable financial markets with moderate
bond & interest rate volatility expected. Under such
circumstances there is certainty and an element of
calm in financial markets allowing for capital to flow
more freely into riskier assets (instead of the safer
bonds).
- When the MOVE Index falls back into the 126 – 100
zone (orange ) this zone has been a zone of
indecision with a potential increase and bounce
back out of the zone higher or a fall lower. I would
consider this a zone a wait to see what happens
next zone.
- At present we appear falling into 100 – 85 level
(green zone). Should we fall below the 85 level this
could be considered a confirmation signal of
stability returning to the bond market which could
lead to a flow of capital to riskier assets such as
those in the S&P500.
In the period from 2007 – 2009 during the Great Financial Crisis bond volatility remained elevated above the 126 level for approx. 23 months (in the red zone on the chart) and this consisted of three peaks in bond volatility that reached a high of 265 on the MOVE Index.
At present we have had 16 months of increased bond volatility reaching in and out of the 126 red zone. Similar to 2007 – 2009 period we have had three peaks in bond volatility however we only reached a high of 173 (in 2007-2009 it was a high of 265).
We are currently moving back down towards the 85 level and this appears to be positive for markets however I would remain cautious until we make a definitive move below the 85 level. We are aware that bond volatility can remain elevated for up to 23 months and we have only been elevated for 16 months and did not reach the highs of 265 like in the 2007 – 2009 period.
The chart does not have to play out the same, reach the same levels or follow a similar time pattern as the 2007 – 2009 period however we are aware that it can move higher and that it can remain elevated for longer therefore we can remain cautious until the volatility moves under the 85 level (below the historical average).
Its hard to ignore that this chart looks bullish for the market as we move down into the green zone and into lower bond market volatility. This creates a stark argument to some of the charts I shared in previous weeks. I would be more comfortable in confirming the bull thesis from this “one” chart should we move below the average 85 level. Furthermore, it is one chart and for me it would not be enough to rely on alone.
I was listening to market guru Raoul Pal this morning and he made an compelling argument to suggest that we are already in the deep trough of a recession and might be about to start climbing out of it. It’s worth considering as recessions are typically declared up to 8 months after they have started and with many countries having already established 2 quarters of negative GDP, we certainly could be in the trough. If there is one chart that would back up Raoul Pals thesis, it is the MOVE Index which is suggesting a move to lower than average bond volatility, suggesting we are potentially beginning to enter a period of stability and certainty which would allow for capital to feel more comfortable flowing towards riskier assets.
This chart will be a great chart to keep an eye on for those with a positive or negative market lens. You can press play on the chart on trading view and it will update and tell you if we are moving into low risk levels or high risk levels, you also have boundaries for the extremes.
This chart and the others I have completed on Macro Mondays are all designed so that you can revisit them at any point and press play and see if we are breaking new into higher or lower risk territory. I hope they all help towards your investing and trading frameworks.
PUKA
inflation & yieldsThe Us 10 Year yield is one of the most important yields to follow.
It greatly impacts long term investment decisions in a vast array of markets; stocks, bonds, real estate.
A clear technical breakout is being observed & this could mean inflation is becoming entrenched.
Yields have a tendency to rally in parabolic fashion. if this breakout holds we can likely expect higher rates.
2 year yield - breakoutThe yield market is going absolutely bonkers tonight in the futures.
What is the bond market telling us?
likely inflation is entrenched. If the 2 year yield closes at or above the Fed Fund Rate before we hear from Powell expect the fed to do a surprise rate hike or remain extremely hawkish.
This will no be good for stocks if this is the case.
Dark times are coming...
- TVC:US10Y is showing significant strength on all major timeframes.
- The EMA's on the monthly timeframe broke bullish after 12,000 days (Last seen 1962).
- If the US10YR breaks the 50% price retracement, we could see between 7.25% - 15%. (Last seen 1981)
The markets are in a scary place right now. This bear market may be extended due to many factors were dealing with in 2023 (War, Virus, Inflation, Rising Interest Rates, Upcoming election, etc...).
Maybe a crash is what's needed to reset all of this chaos?
DOLLAR against all ODDSWe have DXY pegged for Bullish continuation.
I believe DXY is carrying a HTF Momentum to the upside.
It has made an incredible recovery since its Ranges Low at $99.578
And it does not seem to be losing steam.
I see DXY making some sort of retracement with a possible bounce around $104.561, to continue its path with a series of UP closing candles all the way up to $104.790 and the possible yet far $104.480.
Why is this important?
DXY upwards continuation will affect all assets including forex and equities.
For example: I determined NASDAQ Bearish inclinations based on the Dollars path.
See:
This is not only going to translate to NASDAQ but as said above it will affect all. There will be more ideas linked to this particular movement.
Stay tuned!
Continuation Head & ShoulderIndia govt bond yields has formed a continuation head and shoulder pattern
Are the yield going to sub-7%
$TX 10Yr has done well while short term yields stagnant, oh ohIt's important to keep and eye on the 10 & 2Yr yields.
The inverted #yield curve has huge prediction probability.
BUT
The strongest aspect of this is when it normalizes.
We're not far from that as the10yr has been pumping and the shorter time frames have been pretty stagnant. Now, there's 2 ways this happens.
Soft landing, economy slowly recovers
OR
Lower rates, usually = consequences
Guess which is the historical?
TVC:TNX
$TNX, 2Yr Yield, $DXY, $VIX analysisThe 10Yr - TVC:TNX and the 2Yr #yield have held pretty steady the last few days.
Won't be shocked if it doesn't do much until the DJ:DJI & TVC:NDQ , "coincidentally", break out of the patterns we've spoken about.
TVC:DXY losing a lil bit of steam. Is it topping again?
The only odd man out is the $VIX.
It's closer to the lower end of range. IMO this is just something to look at and not of much use until it is.
September will go out with a BANG!!!
One way or another!
This chart pattern suggests yields are going higherUS10Y remains in an established uptrend on the daily chart, and Friday's bullish engulfing candle suggests a swing low has formed and more gains are to follow.
But having looked back at price action since the April low, we note that prices are yet to break the low of a bullish engulfing candle if it has formed after a pullback or period of consolidation. Granted, there are one or two of those engulfing candles that do not fit the exact description (as an open or close is out be a few ticks, meaning it has not truly engulfed). But we've relaxed the rules to note bullish candles that show clear range expansion over the prior candle.
And if that pattern persists, it looks like the 10-year yield (and likely yields across the curve) are at least going to make an attempt to retest or break their cycle highs.
US10Y Rejection not confirmed yet. Bullish unless this breaks.The U.S. Government Bonds 10YR Yield (US10Y) is having a 2-week rejection since the August 22 High that was priced marginally above the 4.336 Resistance. However both the 1D MA50 (blue trend-line) as well as the Higher Lows trend-line that moves just below it, remain intact, maintaining the long-term uptrend.
Today is the ideal spot for a new buy entry, targeting 4.365 (August 22 High). We are only willing to turn short after the price breaks below the Higher Lows trend-line and closes a 1D candle below the 1D MA50. In that case, we will sell and target 3.810 (Fibonacci 0.5 level).
Notice also the 1D RSI which just hit its own Higher Lows trend-line that is holding since March 15.
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Short-Term Outlook: ZN Bonds will decline to 109.16$.I. Bearish Momentum:
The ZN bonds market has recently displayed signs of bearish momentum, with several key indicators pointing towards a potential downturn. One of the most notable factors contributing to this sentiment is the presence of strong seller volume, indicating that there is significant downward pressure on bond prices.
II. Seller Dominance:
Seller dominance can be a powerful indicator of market sentiment. When sellers outnumber buyers, it often leads to downward price movements. In the case of ZN bonds, the sellers have been in control, suggesting that the short-term bias leans towards a bearish outlook.
III. Price Target: 109.16:
Based on the current market conditions and the prevalence of seller dominance, it is reasonable to anticipate a decline in ZN bond prices. Our short-term price target is set at 109.16, which reflects the potential support level where prices may find temporary stabilization.
IV. Intraday Resistance: 110.31:
In addition to the seller dominance, there is a notable intraday resistance level at 110.31. This resistance level acts as an obstacle to any upward price movement and can further support the notion of a downward price trend. Traders should pay close attention to this level as it may provide an opportunity to enter short positions.
In conclusion, the ZN bonds market appears poised for a short-term decline to the 109.16 price area, supported by seller dominance and the presence of an intraday resistance level at 110.31. As a bonds trader, it's vital to remain vigilant and adaptable to changing market conditions while implementing effective risk management strategies. The financial markets are dynamic, and staying informed is essential to making well-informed trading decisions.
10 Y Treasuary Up by +1.7%How can you tell whether a price is in
an uptrend?
--
In this video we tackle this question
--
To learn more
watch it now
---
Disclaimer:
Do not buy or sell anything as this not financial advice please
do your own reasearch before you trade
--
Cheers,
Lubosi Bonds
3x Inverse TLT ETF: Breaking Out of Descending Broadening WedgeThe Inverse ETF for the 20-Year US Government Bond is currently breaking out of a Descending Broadening Wedge and is looking to go much higher perhaps between the 61.8% and 78.6% retraces which would be about a 500-1,400% percentage gain which also means that longer end bond yields are going much higher.
I previously said I would repost this chart after the split so that the numbers would be accurate, and now that split has happened. I have my eyes on the $36 to hold and am currently looking to get some calls for that strike price expiring next year.
It's worth noting the Partial-Decline we got before breaking out of the Broadening wedge, which makes it more likely to play out.
TLT vs. US20Y ~ Snapshot TA / Inverse Correlations V2Update from original TLT vs. US20Y idea:
- Switched to New Pane comparison for optimized viewing/zooming in on price movements.
- Added TLT Candles for better price action analysis.
- Added TLT trend lines for greater emphasis on inverse correlation + indication of trend break-outs.
Boost/Follow appreciated, cheers :)
AMEX:HYG NASDAQ:TLT TVC:US02Y TVC:US05Y TVC:US10Y TVC:US20Y TVC:US30Y
Silver - 33 Moons [And An Options Opportunity](Using 3-Day candles for visibility only. Consult weekly/daily yourself)
I have an open call on Gold in that I believe a new high will be set, but it won't actually be bullish, because metals are going to dump pretty hard in the future and try to make retail sell their bullion.
Gold - When A New ATH Prints, Will You Get Trapped?
I hadn't paid a lot of attention to Silver and was on the sidelines until it dumped 10 percent this week, and now I believe there is a crazy good opportunity.
The problem with Gold is that the Chinese Communist Party bought a lot of it and they're going to get margin called or are the ones actually short selling.
The problem with silver is that there's not a lot of it left and it's really needed for technology.
When smart money wants to buy they accumulate at low prices and distribute at high prices. Often times what precedes the biggest moves are smaller moves that serve the purpose of wiping out and shaking out early short sellers and trapping retail traders who just love to buy high and sell low.
There's a lot of geopolitical risk in the world right now, as you can tell from the weekend "Prigozhin Coup," which I cover the implications of for the US Dollar here.
DXY - The US Petrdollar And The "Prigozhin Coup" In Russia
But the biggest geopolitical risk is what happens if Xi Jinping gets up one morning and dumps the CCP. Nobody believes this can happen and nobody is prepared for it.
But when it happens, it will implicate the whole world for both Xi and China to survive, they will have to weaponize the persecution of the 100 million practitioners of Falun Gong committed by the Jiang Zemin faction starting in 1999.
Since much of the world's financial sector and governments have dirtied themselves with Jiang in the persecution, when that day comes, it will mean that everything, everywhere is limit down. The liquidity will be gone, the algos will be off. Markets will no longer be made.
It is what it is.
In the meantime, nothing about what's going on with silver is bearish. Prices are low and it makes you want to sell, but it's actually a situation where you want to go long.
I believe that $21.20~ or $20.80 is what it's aiming for, and afterwards, the target will be at least $29.
So, what about options? One of the ways you can trade this move is calls on the SLV BlackRock ETF.
Getting in at $19~ and seeing a $10 move would push the ETF to at least $30.
There are two things that are significant about this:
1. Jan '24 at the money calls (based on the price right now) are $2.21
2. Average Implied volatility is only 24% and the 52W week low is 23.6% and the 52W high is 36%.
What this means is that calls are cheap and if iVol were to expand on a bull run from say 26% to 40% you'd pick up an extra ~$1 per contract on top of the strike gains.
The AGQ 2x Bull ETF has even more potential upside but it's a lot more risk and the swings are a lot more dramatic, for really obvious reasons.
All of this also means you can speculate in mining ETFs and individual miners. You need to use the underlying commodities as your metronome, though.
But this also means you'd have to be able to hold a winning position for 3 or 6 months.
You'd want to take profits at $27 and $29.
But if you get ahead of yourself and buy the $30+ high thinking that $50 and $100 and $500 are coming, you're likely to get seriously hurt.
Something is going to happen in this world between now and Q1 2024 and it's not going to be good news for the people lost in delusion wanting to have happy days and be a big baller.
Be careful, and happy trading.
A gold traders’ playbook: how gold could trade into year-endGold has been shunned by investors, but many are now questioning if the yellow metal is nearing an inflection point, for a potential turn, or should we position for further downside.
With US growth likely at a peak and as good as it gets, gold longs partly flushed out, positioning paired back and sentiment as bearish as we’ve seen for years, could we be seeing a low?
Tactically, I feel it is too early to see a resumption of a lasting bull trend and I am in favour of selling rallies into $1925. However, I am also incredibly enthused by the resilience of gold to ‘only’ decline $100, despite rising US bond yields and a stronger USD.
Unless the investment case radically changes – which I lay out below – the risks are skewed for near-term downside, although there is a growing potential for a reversal and strong rally into year-end.
The technical set-up
Since rejecting the $1981 supply zone on 20 July the ensuing bear trend seems to have hit exhaustion, with gold shorts starting to pair back exposures – there is a risk a short covering could take price into the 38.2% fibo of the $1987 to $1884 decline at $1925, which could offer better levels to initiate swing shorts.
Trading intraday has been a challenge for many day traders as volatility has been so low – Gold’s 30-day realised volatility has fallen to 8.3% and the lowest since July 2021. We also see the 5-day average high-low trading range at $14.11; one of the lowest daily ranges for years. Traders need to adapt to these tighter ranges, and many have traded with a tighter stop and increased position size to accommodate for the low vol.
One can easily justify these sanguine conditions given the investment case for the bulls has been lacking. For gold to reverse higher these dynamics need to shift. Notably:
• The opportunity cost of being overweight gold – market players can get a 5.44% risk-free yield in US 6-month T-bills. Gold has no yield, so in a rising rate environment, gold can often face headwinds.
• There is a similar dynamic in the bond market where US 10y-year ‘real’ rates have risen to 2% - again, there is an opportunity cost of holding a yield-less asset.
• Gold has been a poor hedge – with cross-asset volatility at such low levels and equity markets recently performing so strongly the need to hedge risk in the portfolio has been reduced. However, funds have favoured the USD to hedge potential equity drawdown given its deep inverse correlation with S&P500 futures. Gold has a positive 30-day correlation with the US500 or NAS100.
• The USD effect - Over the past month, the USD has rallied against all G10 currencies – with US data continually coming in hot we see US Q3 GDP expectations sitting above trend at around 2.2%
• With US growth above trend, recession hedges have been unwound. We see this in interest rate pricing, with the market pairing back expectations of Fed cuts in 2024 from 160bp of cuts in June to 110bp of cuts. Traders can see the level of expected rate cuts by looking at the spread between SOFR Dec 2023 and Dec 2024 futures (TradingView code - CME:SR3Z2023-CME:SR3Z2024). Gold – another classic recession hedge – has been shunned.
Positioning
Looking beneath the surface we can see a solid flush out of bullish gold positioning – longs have been paired right back. But has positioning swung too far, and could this offer an entry to look more favourably at upside potential?
• Total (known) ETF holdings of gold sit at 90.05m – the lowest since March 2020 having fallen 18% since October 2020.
• We see gold positioning in the futures market has been reduced - net long futures positions held by managed money (in the weekly CFTC report) now sit at 29,356 contracts – having been as high as 116k net long contracts in July
• CTA (Commodity Trading Advisor – trend-following funds) accounts are max short gold futures but may need to see the price the futures prices above $1980 to start trimming this position.
• Gold 1-month option risk reversals (1-month call implied volatility – put implied volatility) sits at 0.07 – the lowest level since March. Options traders are shying away from positioning for upside movement.
Are we about to see a turn higher?
As Richmond Fed President Thomas Barkin said on 22 August, the US economy could accelerate further, which could hold big implications for Fed policy and challenge the consensus of easing growth and potential rate cuts. While we continue to watch global growth data points, we could also feasibly see US headline inflation accelerate higher in the August CPI print (released 13 Sept) from 3.2% to 3.6%. This could result in increased expectations of a November rate hike (from the Fed), which could lift the USD and real yields.
Gold would likely face another leg lower in this dynamic, but would also likely see volatility pick up and trading ranges expand – a more compelling dynamic for CFD traders
However, should inflation pick up near-term, resulting in the Fed likely to hike again, it would then accelerate the belief in lower demand and increased recession risk. It is here where expectations of interest rate cuts would increase as higher rates and a higher-for-longer stance from the Fed should accelerate the risk of recession in 2024.
If and when we see growth data points subsequently roll over, resulting in additional rate cuts priced for 2024, then gold could feasibly have a strong rally into year-end. As always, an open mind to changes in economics and the subsequent investment case for gold will serve traders well.
