The Curious Case of the Yellow Metal

STATUS QUO - Good to be back on the desk after the time off. I was definitely working a lot harder while off, as I traveled back to New York for the summer and had to get the kids ready for their camps, without my wife, who will be joining up next week. I don't see any big changes to the market since I've been gone, with the only difference being a positive one for the portfolio as the positions work their way back around. I continue to see the major currencies in position to outperform against the US Dollar during this era of US protectionism and soft Dollar policy, but also believe the other currencies won't perform as well as the majors, even trading lower against the Buck despite soft Dollar policy, in light of a concurrent round of anticipated risk off flow as reflected through a long overdue capitulation in US equities. Right now, I don't see any trades out there on the FX side, though I do see one trade that is staring us in the face as it is pushed with its back against the wall.

cartoon jan 26

THE ONE TO WATCH - That trade is GOLD and the prospect of the yellow metal once again turning back up after an intense round of declines over the past several days. It's very hard to see the yellow metal continuing to underperform in a backdrop like the one we have right now. The Dollar possibly at risk of weakening against the major currencies, a massive reduction in risk appetite and a world where inflation could be coming back at any moment and at the very minimum, is poised to be moving up when it finally does make that next move, are all things that should be supportive of GOLD and should make for some very strong demand down into the mid 1200s where the market is currently trading. I have said that I like the market being supported above 1200 and ideally around 1250 for that next big push that finally takes the price all the way back up and through some massive resistance in the form of the 2016 high at 1375. We haven't been able to get above that level, but if and when we do, I see GOLD potentially rocketing much higher, possibly back towards the 2000 area in the months ahead.

Of all the markets out there right now, this one seems to be the most mispriced.

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