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FxWirePro: Uphold and Reactivate Long Hedges in Precious Yellow Metal
We kept reiterating the bullish stance on precious yellow metal (gold) that seemed essentially a leveraged gamble on the weakening dollar so far — an upside option with limited downside that we reckon is highly likely to move into the money.
Based on the 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 April 2018. Activated an equivalent unit at $1,327/oz in June 2018 as well, for now, a new entry level of $1,211.50/oz the trades are reactivated.
Gold futures edged higher today, clawing back from a steady slump that had nudged the underlying price of the precious commodity to its lowest finish since Dec. 21, as a brawny dollar paused its advance.
On the other hand, Fed set to continue to hike at every other meeting: Provided that our assumptions of gradual negative growth effects combined with gradual upward inflation effects turn out to be correct, we find it reasonable that the Fed will continue to hike rates at every other meeting going forward.
Currency Strength Index: FxWirePro's hourly USD spot index is inching towards -44 levels (which is bearish), while articulating at (11:23 GMT). For more details on the index, please refer below weblink: