Fx Thoughts : Gold, Bitcoins And The Mighty Dollar – Animal Spirits Forever !

I read an interesting UBS report on why Gold is coiled to spring higher from here.

Using their in house model on the probability that the Fed would reflate in 6-12 months that is based on 2 key indicators – S&P 500 Index down 20% from peak or last Fed action and high yield debt stress ($85 on HYG US ETF).

Throwing in inflation expectations which is falling, they concluded that the Fed would have to react to reflate. That is positive for Gold.

Another indicator that we are near the bottom is also the market positioning where net longs of speculators is down for 6 consecutive weeks.

All this considering that the USD has rallied for 12 consecutive weeks, something that has not happened since 1971.

Is this also why Bitcoin is DEAD ?

Yes. Bitcoin is lowest since the inception of proper record keeping.

I can see why Gold will rebound.

Since Jackson Hole, Gold has massively under performed. But not quite as poorly as Silver, the New Zealand dollar and the Brazilian real.

I am not sure about the UBS theory because I believe it is more a case of animal spirits, herd behaviour and desperate hedging for the years of cheap USD funding that we have grown used to. The obvious hedge is the USD.

But I use Silver as an indicator, as I mentioned last week which is trading at a 4 year low against the USD. https://tradehaven.net/market/fx/captain-america-is-back-fear-index/

And I do not think it will be a specific case of Gold or Silver rebound more than it will be a case for the entire world against the USD to take a breather, although the relative quantum will vary.

The oversold pairs will have to pull back as an eventuality as positions get pared back and central bank speeches or minutes is a good reason to trigger such moves. And we shall have plenty of that this week !

7 Oct 1130 am RBA Cash Target Rate
7 Oct BoJ Monetary Policy Statement
8 Oct 230 am – 2030 pm Fed speak – Kocherlakota (voting), Dudley (voting), Potter(non voting), Evans (voting)
9 Oct 2 am FOMC Sep Meeting Minutes
9 Oct 7 pm BOE Meeting and rate decision
9 Oct 945 pm Fed Bullard (non voting) speak
9 Oct 11 pm ECB’s Draghi and Fed’s Fischer speak on Europe
10 Oct 1 am-340 am Fed Speak – Tarullo (non voting), Lacker (voting), Fischer (voting), Williams (voting)
10 Oct 750 am BOJ Sep Meeting Minutes
10 Oct 9pm Fed Plosser (voting) Speak

And it will go on and on with a lot of talking into next weekend until 12 Oct where ECB’s Draghi will hold a press conference at midnight in Washington – great fireworks !

It really does not matter what they say because it is how market chooses to interpret as I have written about before. https://tradehaven.net/market/fx/what-happened-last-night-who-is-telling-who-what-to-do/

I have reason to believe that this animal spirit will last longer (up to 2 years) as long as the ECB keeps their stimulus and the US gets ready for their first hikes.

Just keep trading !