From the Floor: Trump propels gold to $1,200/oz — #SaxoStrats#SaxoStrats
- Gold breaks $1,200/oz after Trump press conference fails to provide fiscal specifics
- Gold correlation to yen and real yields still intact — Hansen
- $1,205/oz shaping up as the key resistance — Hansen
- Dollar bulls 'scared' after Trump adds nothing new on stimulus package — Hardy
- USDJPY back below 115.0 handle after bond yields dip — Hardy
- 'Stay away' from pharmaceuticals sector after Trump gives stark warning — Garnry
- WTI rebounds off support at $50.70/b despite bearish EIA report — Hansen
By Martin O’Rourke
All that glisters
Gold is on the march again on the back of yet another extraordinary performance from Donald Trump last night, after the president-elect came out fighting against the latest scandal to land in his in-tray.
Trump, who takes office on January 20, was robust in challenging the latest claims that he is effectively a Russian stooge, but was somewhat circumspect when it came to providing specifics on his fiscal stimulus package, stymying the dollar and opening the door to gold's sharp move higher.
"This major move overnight was totally Trump-driven and this has gold testing $1,200/oz," says Saxo Bank's head of commodities strategy Ole Hansen. "$1,196-204/oz is the key battlefield and while investors are still quite lukewarm, open interest in gold futures indicates some action is happening and $1,205/oz could be the trigger for that."
That the move was almost entirely driven by dollar weakness will have been noted by gold watchers after Trump failed to give any details whatsoever on the fiscal stimulus package that has helped support the dollar and equities rally of the last two months predicated on
"There really was a lack of a strong message on fiscal stimulus and that scared dollar longs," says John J Hardy, Saxo Bank's head of forex strategy. "This has helped push USDJPY to below the 115.0 handle and we have bigger levels down at the 111.0 and 112.0 area."
Hansen points out that yen strength continues to be pivotal to understanding the likely direction of gold as the pair have moved in clear correlation since November 8.
The gold/JPY correlation:
Source: Bloomberg, Saxo Bank
Government long-dated bond yields also fell after the conference as investors fell back into the arms of safer investments in view of Trump's failure to expand on tax cuts or how he might implement a Reaganite-type stimulus in the US.
"Gold is still hostage to dollar and real yields," said Hansen.
Gold was at $1,205.90/oz at 0849 GMT.
The gold/US 10-year yield correlation:
Source: Bloomberg: Saxo Bank
The Trump presser not surprisingly had EURUSD frothing at the bit for a push higher above the 1.0650 zone from around 1.0475 Wednesday and with European Central Bank minutes on tap later Thursday, potential for the needle to shift could be there throughout the European day.
"This is mostly about the market being unsure of itself," says Hardy. "1.0670 is the key area theoretically opening up to the 1.0850 area and this is my line in the sand."
"Until we get through that, I'm seeing this as noise and only a break through that will need a reassessment," he says.
EURUSD facing resistance at 1.0670:
The contrarian among you might fancy a dip into the US healthcare sector after Trump said 'they are getting away with murder', but Saxo Bank's head of equities strategy Peter Garnry warns it would be foolhardy.
"It is not very good news for investors when the president is saying something like this," says Garnry. "It stirs the uincertainty again around healthcare and that might mean big reform for that sector and a lot of bad news for different segments."
"There are a lot of signals that you should just stay away from the US health sector," says Garnry. "The momentum charts show the biotech and other parts of the health sector are also towards the bottom."
"A lot of 'value' investors might be looking to get into the space but I think they should consider this very deeply."
WTI responded somewhat counter intuitively to a bearish EIA report Wednesday bouncing from support at $50.70/barrel to find solid ground above $52/b.
"I think we're seeing oil enter a very rangebound period," says Hansen.
Martin O'Rourke is Saxo Bank's managing editor