Intraday Market Thoughts

Gold: Is it Different this Time?

by Ashraf Laidi
Jun 3, 2019 15:41

Is the ascent in gold another example of its many unsustainable rallies? Or will the current rally last for some time? Gold rose 1.7% in May, posting its biggest monthly gain since January, thanks to a helpful combination of safe-haven flows from tumbling global equities and a broadening rally in metals at the expense of energy. We won't go through the powerful textbook technicals justifying the yellow gold as we have mentioned this numerous times over the past 6 weeks for our Premium subscribers. But there are other dynamics.

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Gold: Is it Different this Time? - Gold Net Longs June 3 2019 (Chart 1)

Resurfacing market expectations of a Fed rate cut this year (86% chance of a rate cut by September and according to Fed funds futures and perhaps as many as 2 rate cuts from the Eurodollar futures) have provided gold bulls with an essential source of confidence, especially as USD faltered.

USD Recurring Failures & Stagflation Risks

The recurring failures of various USD pairs to retest and break recent highs have served as a vital fillip for gold's recurring support near 1266. Whether it is USDCNY's failure to break 6.0, EURUSD's holding above 1.10 or USDJPY's cap at 112, the FX message is loud and clear. 

Today's release of US May manufacturing ISM hitting 2 ½ year lows and the prices paid edging higher could be the start of stagflationary consequences of the US-China trade war. Last week, the PMI version of manufacturing hit a 10-year low. Perhpas "stagflation" is a little exageration, but slowing growth and price burden on consumers is the inevitable result of the trade war.

Silver's striking signal?

What about silver? Is it time for gold's cheaper cousin to finally wake up? One striking aspect is that despite having fallen for 4 straight months, silver preserved its multi-year trend of higher lows.

All these fundamentals factors are well and good. You probably have read a similar narrative 6 months or 2 years ago. The key here is to figure out whether the price action will enter a new wave of momentum and how to build a trade around it. And that's what I'll cover in tonight's Premium Video.

Act Exp Prev GMT
Final Manufacturing PMI [F]
50.5 50.8 50.6 Jun 03 13:45
ISM Manufacturing PMI
52.1 53.0 52.8 Jun 03 14:00
50.2 50.0 50.2 Jun 03 1:45
Eurozone Spanish PMI Manufacturing
50.1 51.4 51.8 Jun 03 7:15
Eurozone Final PMI Manufacturing [F]
47.7 47.7 47.7 Jun 03 8:00

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