Comex futures contracts for gold were at $1,253.08 a troy ounce by 10:05GMT, up $3.60, or around 0.3%. Gold edged higher yesterday to notch its 5th gain in six sessions.
Currently, we are maintaining a tactical short gold trade recommendation as in the near-term we see yields moving higher if only courtesy of positioning. Beyond our short-term tactical recommendation, our broader view on gold is that prices will largely trade sideways throughout the remainder of the year, with an upward trajectory in early 2018.
As the dollar extended its recent decline to the least level since October, boosting the appeal of the yellow metal.
While our forecasts envision inflation and rates moving slightly higher over the balance of the year, we are mindful that US real yields could remain constrained during the current Fed tightening cycle, adding to the increasing upside risks in precious metals.
In the precious metal markets, a combination of decent growth and subdued inflation will likely keep prices largely range bound throughout the remainder of the year.
Overall, with the exception of aluminum, we see base metals prices softening in 2H’17 relative to their year-to-date averages, while precious metals prices should remain largely range bound.
Trade recommendations:
Add longs in 3M vs staying short in 6M 180:100 vega-weighted gold straddle calendars (vol pts).
Sell Jun'18 45 puts (1 time notional) vs buy 38 puts (2.5 times notional) inverse ratio put spread Zero-cost long 7M 21% OTMS XAGUSD puts vs short 7M 10% OTMS XAUUSD.
