Global Macro Strategist
We are shorting gold into next week's Federal Open Market Committee meeting; we are also taking an in-depth view on how precious metals have played out so far in this hiking cycle.
Tactical overview
Shorting gold and silver into the previous five FOMC hikes has been a profitable strategy so far.
The average return on gold has been -2.44%, with the range being -0.66% to -4.16%.
The average return on silver has been -4.39%, with the range being -3.35% to -5.75%.
It is worth bearing in mind that the positioning on gold and silver was at extreme net-long levels for quite a few of these meetings.
The market is currently net-long gold and net-short silver; on a five-year average positioning basis, gold is well above the average while silver is below.
As we approach (the near-certain) hike number six on March 21, it's worth noting that gold is holding up well given a combination of retreating US yields, US dollar weakness, and further turbulence around team Trump with the recent firing of ex-secretary of state Rex Tillerson.
Tactical trades with short gold exposure – either outright or through buying puts/put spreads on gold – look compelling, with the Fed being the key trigger next week. Based on the current gold price of $1,328/oz, the implied target range for shorts is from $1,275/oz to $1,316/oz.
It's worth noting that gold has done a good job of bouncing back up and moving to new highs after Fed hikes, which could imply a tactical negative bias going into the meeting that flips over to a positive bias after the meeting.
Key risks
• Contracting US yields seem to be currently supportive of gold.
• A weaker dollar tends to help the precious metals space, as well as commodities in general.
• General risk-off between today and the countdown to the Fed could see a flight to safety into gold and US Treasuries, especially if trade war risks resurface.
• A dovish Fed chair Jerome Powell at next week’s meeting could see a selloff in the US dollar, rates pull back, and gold/silver shoot up.
• Silver’s net-short positioning could make it a candidate for a squeeze.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
