Gold ready for action
We believe, however, that the risk of another cat-out-of-the-bag rally has increased – not least considering the dollar rally showing signs of pausing following the recent run-up, US-China trade worries not going away, and rising inflation concerns keeping US real yields rangebound.
Gold traded lower ahead only to rally following most of the previous six rate hikes in this cycle, not least considering the dovish manner in which the Federal Open Market Committee presented these rate hikes.
Paper investments have faded with hedge funds' position near a two-year low while total holdings in exchange-traded funds backed by gold has dropped 34 tons to 2,206 tons from a five-year high last month. In the futures market, the aggregate open interest and the weekly trading range have both hit a six-month low.
However, a hawkish hike later today carries the risk of sending the dollar and bond yields higher and gold lower. The key levels to look out for has remained the same for some time now: a sustained break below $1,286/oz would call into question the rally from the December low while a move above $1,308/oz, the 200-day moving average, is likely to attract renewed technical and momentum buying from funds currently underweight in gold.
— Edited by Michael McKenna