Precious Metals Shrug Off A Stronger Dollar

 | Jan 04, 2017 01:18AM ET

Gold, silver and their quasi-industrial brothers, platinum and palladium are ignoring the USD playbook in the first two trading sessions of the year. Ignoring USD strength trampling over the G10 space and posting a quite constructive price action on the charts.

A few days does not a safe-haven rally make, in fact after so many years I always January price action with a grain of salt. That is a story for another day but there maybe a few short-term factors at work.

  1. In the spirit of safe havens, reality may be biting that we are only 16 days away from President-Elect Trump’s inauguration. I was bemused that his win was interpreted as the end of the world by the markets for a whole 12 hours before, in a herd-like turn a million wildebeest on the Serengeti would be proud of; global markets decided he would be the reflation Caligula the world had been searching for. Sending the USD, US Yields much higher and equities into the stratosphere. I have nothing against Mr Trump, in fact, I predicted his win. He is, and his policies are, however, a “known unknown.” This uncertainty may be playing its part as money moves into safe places to hide.
  2. A new year in China, a new years worth of allocation by the man on the street to move money out Chinese Yuan. $50,000 worth in fact. The depreciation of the currency against the USD and the possibility of a trade war is clearly resonating inside China. Confidence hasn’t been inspired by the PBOC’s tightening of movements out of the capital account. Precious metals could be seeing some beneficial spillover.
  3. Positioning. Major gold ETF’s have seen substantial declines in holdings recently. Speculative short positioning has also increased on the futures. We may well just be seeing a short squeeze due to short-term positioning. Time will tell on this one.
  4. US Yields have dipped overnight and into Asia across the curve. This probably explains the price action in USD/JPY today more than gold but US Yields are in fact a substantial distance now of their recent highs. (See the hourly U.S. 10-Year below. Note it is quoted inverted)