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Gold has been catching bids lately. The dynamics in the yield space, as well as some equities risk off sentiment managed spilling over to gold. Do bear in mind that recent equity risk off mode has been among the FAANGs and has little bearing on the overall sentiment (we continue our thesis of markets bouncing from a few days ago).
The fundamental case for gold has not really changed over past days according to us, but momentum players have managed pushing gold substantially higher.
The technical break out has performed the short-term potential as we hit the 1330 area. Chasing gold here is a late trade according to us.
Gold net non-commercials are long, but not at extreme levels.
Much of the “logic” for the recent gold move was stemming from an increased fear, but people have confused that the NASDAQ fall out yesterday has little to do with the overall market. The move in yields (another long gold logic) is also rather late as yields easily could snap right back up. Lastly, for inflation fears, forget gold.
Below is a chart of VIX orange and gold white. Note how the move in gold has “dislocated” from the move in VIX. The biggest logic for gold longs remains an increased fear, and by the looks of the VIX, fear is not overly stressed here.
Gold volatility has spiked big over past days. Our view is that gold needs to consolidate or retrace some of the sharp gains. We would actively be looking to sell premium as part of the trade to capture a slight fall/consolidation in gold. Selling strangles/straddles or other premium selling strategies offer a good risk reward set up here.
Source, charts by Bloomberg