Following the seventh US rate hike this cycle and with the promise of two more before year-end, I see the potential for the gold focus turning more supportive.
• The dollar rally is showing signs of running out of steam.
• The US yield curve is likely to continue to flatten as short-term yields rise while long-end prices stay supported (due to emerging market worries and trade wars).
• Even if bond yields move higher, rising inflation expectations may keep real yields rangebound as breakevens move higher.
• Hedge fund positions are near a two-year low while total holdings in ETFs have recently seen a drop from a five-year high.
Look out for silver, which may prove to be the proverbial canary in the coal mine as it challenges resistance above $17/oz and a trendline dating from last September.
Gold needs to clear $1,308/oz, its 200-day moving average, in order to attract renewed “paper” demand through futures and ETFs. A break above $1,308/oz could see prices initially return to an area between $1,323/oz. and $1,333/oz.