Gold Defies Predictions of Swoon

We just finished President Trump's best week in the White House with a win for the legislative branch (Supreme Court) and a win internationally (Syria airstrikes). Gold did trade through the $1,260-$1,262 resistance on the back of the Syrian response and the weak payroll numbers, but has drifted back down below the 100-day moving average as equities continue to be resilient to any negative news. It almost feels as if Trump has Jared Kushner and Gary Cohn in the control room buying S&P futures any time they wobble just so he can claim how good a job he is doing for the economy. Most market pundits are still looking for a retreat in gold but it remains at $1,250, which is $100 higher than after the election with a relatively unchanged dollar and substantially higher equity market. The Commitment of Traders report showed an increase in net length in both gold and silver but is far from being overbought. Copper has started the week on the back foot as the workers at the Escondida mine in Chile got nothing during their 43-day strike and have set the table for easier negotiations for the rest of the Chilean mines. The annual CESCO conference has concluded in Santiago and global demand seems to be steady with China cathode demand expected to increase as much as 3% year over year, but scrap supply seems to be plentiful, which may weigh on the high inventories. The biggest worry I have is the recent weakness in the Australian dollar, which may show a slowing of Chinese demand for all metals as the government may be tightening credit. Every investor seems to be bullish on emerging markets, especially in Asia, but the U.S. dollar versus Australia's is a good barometer of this for me and it looks as if it is rolling over, so watch copper, iron ore and steel. BHP Billiton , which is Australia's largest natural resources company, is having to deal with activism as Elliott Management continues to extend its hubris overseas, but having dealt with BHP for years I think activist investor Paul Singer may have met a stronger match than Alcoa or Arconic presents and they will tell him to go back and contribute more money to Rudy Giuliani's presidential campaign. Speaking of Alcoa, the stock has performed better than I have expected, but news that Chinese aluminum continues to surge (+21%) year over year and the amount of metal tied up in financing schemes grows may put a crimp in further price advances. The London Metal Exchange inventories are at eight-year lows but the off-exchange stockpiles more than offset this, and with no rhetoric about dumping or oversupply in the Trump-Xi talks, and CTA overbought positioning, I feel aluminum is a good short. Oil prices continue to move higher on news of force majeure in the Libyan Sahara field due to protesters setting up a blockade. The price momentum from quarter end, which increased net length 54 million barrels (23 million for West Texas Intermediate and 31 million for Brent) through last Tuesday was extended on the back of the Syrian retaliation, so CTAs have piled in. As WTI approaches $53, it seems the worries over a move back to $40 are a distant memory (10 days ago), although inventories are not being drawn down. The main difference is there has been very little hedging activity by producers as 2017 is done and E&P companies have hedged a good amount in 2018. Many small producers who would like to lock in 2019 do not have the credit ability to do so, but will be more active as the 2017 hedges roll off, keeping pressure on the forward curve.

Gold Defies Predictions of Swoon

As Trump has his best week so far, equities remain resilient to negative news.

Columnist Conversation

Trifecta Trades

Tuesday Morning Fibocall for 10/20/2020

This Weekend on Real Money

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.