FxWirePro: Bucking the gold trend and holding onto conviction trade

The precious metals have also significantly appreciated since December’s FOMC meeting and rate hike with gold extending its rally to a three-month high, once again breaching above $1,300/oz.

However, we kept adding directional trades and have constantly been the short hedge on gold prices since December on a view that the market was underpricing Fed tightening, given solid economic growth and a possible bottoming out in inflation.

Please go through below weblinks before proceeding further,

https://www.econotimes.com/FxWirePro-Gold-displays-bearish-RSI-divergence-bears-lingering-to-breach-7-DMA-consolidation-phase-intact-but-railroad-pattern-signals-weakness-1083099

https://www.econotimes.com/FxWirePro-Gold-prices-on-track-of-50-Fibonacci-retracements-to-hit-5-months-highs--Short-hedge-as-more-slumps-on-cards-ahead-of-Fed-1054144

A continuation of the global reflation trade into 2018 has sent the trade-weighted US Dollar lower and led to further flattening of the US Treasury yield curve, boosting gold higher following the December FOMC meeting and rate hike.

However, looking ahead, the JPM base case is that the Fed under incoming Chair Powell will hike in March followed by three more hikes in 2018. As such, we next couple of months and stay short.

Initially, we added shorts in CME gold of Dec’17 tenors at a price of $1,318/oz. Rolled on to Feb’18 tenors embedding the roll gains into our entry level which increases to $1,321.20/oz.

Trade target is $1,190/oz with a stop at $1,384/oz. Marked to market on January, 4 2018 at $1,316.50/oz for a gain of $4.70/oz or 0.4%.