Article / 15 March 2018 at 2:02 GMT

Precious metals offer opportunity as FOMC draws near — #SaxoStrats

Global Macro Strategist / Saxo Bank Group - Singapore Hub

  • Shorting gold and silver into the FOMC hikes has been profitable so far
  • Currently the market is net-long on gold and net-short on silver
  • Gold has bounced back up and moved to new highs after Fed hikes
  • Watch for a flight to safety into gold and US Treasuries if trade war risks resurface

By Kay Van-Petersen

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


  • The average return on the gold has been -2.44%, with the range being -0.66% to -4.16%
  • While the average return on the silver has been -4.39%, with the range being -3.35% to -5.75%.
  • It is worth bearing in mind for quite a few of these meetings the positioning on gold and silver were at extreme net-long levels.

  • Currently the market is net-long gold and net-short silver; on a five year average positioning basis, gold is well above the average, whilst silver is below the average.
  • As we approach hike number six on March 21, it's worth noting that gold is holding up well given a combination of US yields pulling back, US dollar weakness and further turbulence around team Trump with the recent firing of Secretary of State Rex Tillerson.

"Rexit" impact ... The firing of Secretary of State Rex Tillerson is a sign of White House turmoil that could lend support to safe haven investments such as gold. Photo: Shutterstock

  • Tactical trade views 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 $1328/oz, the implied target range for shorts is from $1275/oz to $1316/oz.
  • It's worth noting that gold has done a good job of bouncing back up and moving to new highs after the Fed hike, which could imply a tactical negative bias going into the Fed meeting, which flips over to a positive bias after the meeting.


Key risks

  • US yields contracting seem to be currently supportive of gold.
  • A weaker US 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 FOMC chair Jerome Powell at next week’s Fed meeting could see a selloff in the US dollar, rates pullback & gold/silver shoot up.
  • Silver’s net-short positioning could make it a candidate for a squeeze.



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– Edited by Robert Ryan

Kay Van Petersen is Global Macro Strategist at Saxo Bank. You can follow him on Twitter: @SaxoStrats or @KVP_Macro.

Kay Van-Petersen Kay Van-Petersen
08:10:38 .
Gooooooooooooood Morning to the Asia Pacific & Happy Macro Weds, a good evening/night to the Americas, MEA & Europe
08:14:05 So start off this morning with some adjustments to the MM Book.

Adjusting our gold shorts

A. The 1.5% risk that was short from 1329, we take off half here & move the PT to 1306 (1301) & move the stop to 1320 (1350)

B. The 1.0% risk that was short from 1325
=>We initially took off 1/3 at 1316

=>We adjust the balance with a stop at 1320 & PT at 1302
08:25:41 (*Here being $1310, low o/n was 1307.23)

Dovish Fed & Potential Near-Term Prices

Gold +$15-25 from these c. $1310

US10s -10bp, from these c. 2.90%

JPY -50pips to 1fig... taking us back to recent 105.60 lows from these 106.48

EUR +50-75pip taking us above 1.2300 from these 1.2253 lvls...

Would also be risk-on for equities & vol would come down...
Kay Van-Petersen Kay Van-Petersen
Gold has been holding up very well on the last few trading sessions, very well despite yields creeping higher (+10bp on US 5s & 10s), a stronger USD (weaker EUR & JPY)... there is a segment of the mkt that wants to lift the shiny metal

It feels like we could see an easy $15-25 pop on a dovish/neutral Fed...

So in essence this is akin to take half the risk off the table, & moving our stops to below our entry points..

Its played out well just not as well as expected (i.e. the avg. implied target historically would have seen a pullback to $1295)...

The low so far into this FOMC was o/n at 1307.23 (bloomie, spot gold)

Technically, 1306 is 100D with the YTD low being 1302.59....


If we get a dovish/neutral interpretation from Powell in under 24hrs, we may look for a tactical long on Gold...
Kay Van-Petersen Kay Van-Petersen
The pathway of spot gold since Fri 9 Mar 2018


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