Gold Waiting For Retracement
Halal Traders | Aug 04, 2016 10:55AM ET
Our risk free trade was stopped out at $1,270 on the 21st of June before a re-entry at $1250 as gold behaved as we expected in our June 16th article . In the midst of Britain deciding to leave the European Union in an unexpected decision, gold soared to as high as around $1375 on July 6th as we exited our trade.
Two weeks after that, price retraced in anticipation of a Fed rate hike last week that was only proven false; as later explained by the meager 0.1% 2nd quarter GDP expansion despite the higher 2.6% expected compared to the revised 1st quarter figure of 1.1%.
Looking at the CME FedWatch, the market does not expect any hike soon. Given the US presidential election this November 8th, it’s highly unlikely. In response, the S&P 500 and the Dow made a new yearly high last week.
We believe the bidding up was only to stop out those who are heavily short after the Brexit drama, as we should see in the coming months if the rise is going to be long lived. True enough that the market can remain irrational far longer than any investors can remain solvent, but there can only be so much irrationality before prices revert to their true mean value.
The recent CoT reports on gold futures showed that net long is decreasing by 6956 contracts to +279K contracts. We believe this reversal is due to profit taking as price reached new yearly high and is only temporary before new bidding starts as price falls to a more attractive bidding level around $1320 to $1300/oz.
A further look at currency futures showed that recent CoT reports indicated that market participants are net long in all currencies except Mexican Peso, euro and the British pound. The US dollar futures has increasing net longs as a result in sudden interest due to Brexit, but recent pattern suggest new shorts are accumulating, which means dollar holders are looking for higher yielding investments.
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HalalTraders is currently flat and look forward to rejoining the bulls around $1,320 - $1,300/oz level.
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