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FxWirePro: What after FED hikes and hints of hawkish tones - Treasury yields, ETF liquidation, and Gold trade perspectives

This write up emphasizes the upholding longs in Feb'17 CME gold futures following the December Fed hike, macro markets broadly reacted meaningfully to the more hawkish rate projection, with gold specifically selling off to $1,130/oz. 

But this price level for gold made us take pause both fundamentally and technically. We’ve seen a strong support at around 1128 levels (23.6% Fibonacci retracements).

Granted, there are risks that the bottom in price could be similar to that reached in 2015 if real yields raise another 50 basis points; however, some of the assumptions one has to make to get us there look farfetched. 

The Fed had hinted in December meeting that at least three rate hikes were in the offing for 2017, according to a forecast of interest rates from members of the central bank, known as the dot-plot. Any deferments in raising interest rates would be deemed as positive for gold, a non-interest-bearing asset, and negative for the dollar.

We concluded that gold’s near-term selloff may be approaching an end given the severity in the post-hike moves in both the USD and S&P 500 and the magnitude of the sharp rise in yields.  While the potential for a further near-term boost in yields and the possibility for further ETF liquidation pose near-term risks, we recommended going long the Feb'17 CME gold contract.

Gold futures for February delivery on the Comex division of the NYME touched a session peak of $1,190.60 a troy ounce, a level not seen since 30th November.

Initiate longs in Feb’17 CME gold at a price of $1,188.50/oz. Trade target is $1,213 and 1,240/oz with a stop at $1,075/oz.  Marked to market for a gain of 1st target of $24/oz and 51.5 as the 2nd target.

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February 28 12:00 UTC Released

TRForeign Arrivals YY*

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-9.81 %

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-11.1 %

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INInfrastructure Output YY*

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3.4 %

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5.60 %

February 28 13:30 UTC 7777m

CAProducer Prices MM

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0.4 %

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CAProducer Prices YY

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2.2 %

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CARaw Materials Prices MM

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6.5 %

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CARaw Materials Prices YY

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17.2 %

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USGDP 2nd Estimate

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2.1 %

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1.9 %

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USGDP Cons Spending Prelim

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2.5 %

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USGDP Deflator Prelim

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2.1 %

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2.1 %

February 28 13:30 UTC 7777m

USPCE Prices Prelim

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2.2 %

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2.2 %

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