FxWirePro: Bullish hedging in bullion - Stay long Dec’18 CME gold

The bullish stance on precious yellow metal (gold) is essentially a leveraged gamble on the weakening dollar—an upside option with the limited downside that we believe is highly likely to move into the money. Based on our historical analysis, in the unlikely event the dollar rallies through the late cycle (only 1 out of the last 6 cycles), the resulting gold losses were relatively tame (8%).

However, on the flip side, over the 5 cycles when the dollar weakened over the last quartile of expansion, gold prices increased over 40% on average even before the subsequent recession dynamics pushed prices even higher. To us, this looks like a relatively cheap upside option. The downside scenario looks both relatively unlikely on a historical basis and has only returned moderate losses when it did come about in the 1991 cycle.

Alternatively, the more likely upside scenario for gold has returned multiples of this potential loss. With our forecasts still calling for a resumption of a synchronized global growth and hence a resumption of the medium-term trend lower in the dollar, we consequently maintain our bullish view on bullion.

Initiated longs in gold contracts for Dec’18 delivery at $1,352.80/oz in February 2018. Activated an equivalent unit at $1,327/oz in March 2018 as well for a new entry level of $1,339.90/oz. Trade target is $1,540/oz while we have lowered our stop to $1,250/oz. Courtesy: JPM

Gold futures edged higher today, clawing back from steady slumps that had nudged the underlying price of the precious commodity to its lowest finish since Dec. 21, as a brawny dollar paused its advance.

Currency Strength Index: FxWirePro's hourly USD spot index is inching towards -30 levels (which is bearish), while articulating at (13:16 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex

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