Marex Spectron Bullion Thoughts
A much busier day than expected, with the dollar losing ground slightly in the afternoon to the majors, and gold and silver rallying strongly. Now, I have read reports on various news services that the gold rally was due to “haven buying” on the back of fears that the Italian budget discussions will cause ructions in Europe. May I politely say to those commentators who dredged this one up from their back pockets “utter rubbish”. If the market place was that worried about the Eurozone then the euro itself would not have rallied. This situation has been festering for almost a week now and to attribute the gold rally yesterday afternoon to this is pure fantasy.
Unfortunately, people seem to need a reason for things to happen and in this particular case they seized on this. But my friends, let me tell you, sometimes things just happen. Yes, there are various reasons for them, but nothing concrete, nothing major and this was one of those times. Gold rallied fifteen dollars. It is still within the range it has been for weeks. This was purely and simply down to short covering, stops and some chart points. Gold broke back through 1200 on December and on spot, which triggered buying. Euro gold broke through a resistance point at 1030 and triggered some more buying. The market has been short and weak for ages and as the price rallied, more shorts were put on and then covered as the snowball effect took hold. The same applies to silver and for these “reasons” and no others, the price rose. We are now five dollars lower from yesterday’s high, as the “euphoria” from the rally dims and the market resumes its sideways trend. This is not to say that the market cannot rally further, but if it does it will be because it is still heavily short, or because the dollar falls. If we do rally, I would look to sell into it, with a view to prices coming back down during the month.
As far as the currencies go, the day started yesterday with the dollar in the ascendancy, but as the day progressed, dollar longs became bored with a lack of news and a lack of downside momentum. This created some short covering and once again the market snowball rolled on its way. Do not forget the power of the algorithmic traders in these moves. All these programmes link the currencies and the metals, so that if one moves, the others do too. A classic example of this is when Brexit headlines pop up and sterling moves 100 points in a second, you will see gold, silver, euro, yen etc etc move as well, albeit in a much smaller way. But as much as certain people might like to think there is a link between Brexit and the gold price, there isn’t!! Today has seen an article in the Corriere della Sera, Italy’s largest newspaper, saying that the government will commit to reducing the budget deficit targets for 2020 and 21. This has eased fears within Europe and contributed to the Euro rally overnight. This situation will sort itself out, as all Eurozone situations do, with some sort of fudge between Italy and the European Commission which will keep all sides happy, albeit still in breach of theoretical targets! The Fed’s Jerome Powell said he expects to stick with the central bank’s current path of gradual rate rises. Nothing to see here. Today sees various PMI figures in Europe, followed by ADP employment, PMI and ISM Non-Manufacturing in the US. So nothing terribly exciting, although one can expect sterling to jump around a bit as Theresa May gives her conference speech and attempts to safeguard her job.