Gold continues to trade well with fresh ETF inflows as the dollar and equities chop back and forth. The most interesting thing about the gold market is that it is making three-month highs despite still having a very small net length position.
The open interest in comex gold is 415,000 contracts, down from 478,000 on Jan. 20. This in part is due to the February-April rollover where commodity trading advisors (CTAs) liquidated positions, but it is still at a historically low level considering the volume traded is 20 million-plus ounces daily.
The main driver in gold is the drop in U.S. yields from 2.5% to 2.32% in the 10-year Treasury note, but also that no one wants to see their currency strengthen. The latter is why Stanley Druckenmiller claims he has bought back the gold he sold before the election. I would expect to see more "high profile" sponsorship as there is so much uncertainty to when growth policies will be enacted and how much divisiveness the executive branch creates.
Thirty-day realized gold volatility is 11.5% as the move has been a grind, but as predicted we have exceeded the 200-day moving average of 1149 in XAU/EUR and we should watch for the all-time high of 1386 from October 2012 as a target in coming months. Obviously, political risk and the uncertainty of a volatile president both domestically and overseas are responsible for the gold move higher. The platinum group metals and silver have followed gold and may even outperform in the next 30 days if we see any signs of pro-growth policies moving forward.
Base metals have been helped by copper's jump on the news of the strike at BHP Billiton's (BHP) Escondida mine in Chile. Copper continues to be supported at $2.60 a pound and any prolonged supply disruption from the largest mines while Freeport McMoRan (FCX) is dealing with export issues at the Grasberg mine in Indonesia will help draw down inventories. A quick resolution to the strike could send copper back below $2.50 as demand is not very strong and net length is overextended. Lead and zinc are enjoying a rise in prices, with zinc becoming tight on a lack of response from Glencore (GLNCY) or Vedanta (VEDL) on shut-in capacity.
Crude oil has shrugged off the 14 million barrel inventory build from the American Petroleum Institute with hedge funds still willing to buy the dip, keeping the $51-$54 range in play. The U.S. rig ramp-up, lower revisions in global demand and all-time-high net length from funds in both West Texas Intermediate and Brent may keep a ceiling on crude. There have been large sellers of put skew by funds that think the bottom is in place, with the sanction rhetoric by President Trump vs. Iran ramping up. Producers continue to be active buying put spreads and selling calls for calendar 2017-18, which has collapsed the contango.