A Golden Dip - Why I'm a Buyer of the Yellow Metal

  • Looking to buy some yellow metal
  • GOLD pulls back on USD strength
  • Inverse correlation not as relevant now

PERSONAL STUFF - In Wednesday's pieces, I highlighted my bias for a stronger Sterling-Aussie rate both on the fundamental and technical fronts. The timing to play back into the long position after this market had been beaten down for so many weeks seemed ideal, and the position was established at a very attractive entry in the 1.8630s. This is an outlook that projects significant upside in the weeks and months ahead. But due to personal circumstances, I had to cut out my positions, still taking a nice profit, but nothing like the profit I am projecting with this trade. Some of you emailed me for an explanation and so, there it is. I still love GBPAUD much higher and will look to get back in on a dip. Stand by.

THE RETREAT - But there are other exciting things going on out there. Some of you may have noticed this unnerving retreat in the price of GOLD. The yellow metal had been trading as high as the $1280s several days back and now it looks like it could be threatening a break below $1200. But once again, much in the same way that I am a fan of GBPAUD, I am a fan of GOLD. Of course there are other dynamics at play with GOLD, but I believe this pullback is nothing more than an excellent opportunity to buy. Why's that?

WHY? - Well, we need to understand what has been driving the GOLD weakness. This latest wave of Fed hawkishness post FOMC is shifting yield differentials back in the Buck's favor, particularly after Fed Bullard drove this home Wednesday after saying the market was too dovish with its timeline trajectory and that even an April hike should not be ruled out. Given GOLD's traditional inverse correlation with the US Dollar, the resurgence in USD demand therefore forced GOLD lower. 

NOT RELEVANT - But I don't think this inverse relationship is that relevant right now, with the market needing to focus more on exhausted central bank policy and the potential for this to result in a collapse in asset prices, with this artificial support no longer available. And if we see this happen, as I believe it will, demand for GOLD on risk off flow will take precedence over any distaste for the metal on Dollar demand.

GOLD weakness is nothing more than a fabulous opportunity to buy. Via @joelkruger

DREAM LEVEL - It's important to remember that with monetary policy reaching its limits and every country battling for a weaker currency, the lure of being invested in a hard asset like GOLD becomes increasingly attractive. And so I love buying GOLD down here. I tried buying some the other day but am sidelined again after a small profit. My dream level for today is $1200. If we get down there, I will look to buy aggressively.

TECHNICALLY SPEAKING - Just a little technical insight for you.  The average daily range in GOLD is about $22. So if we take the current Thursday high at the time of this update ($1223) and subtract the daily ATR, we get a $1201. It's quite possible if we get down that close to the barrier, we will test it and even take out some stops below. So that's my level for today. I will buy $1200. It's also worth noting there is significant support at $1190 and I don't think we see a weekly close below that level.

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