Market Inquisitor

Tamen Dubito

May 2017 Gold Outlook

The first round of the French election allayed fears of a populist surge in Europe’s 2nd largest economy. In the environment of heightened political risk, gold rallied $100, approaching the key $1300 level. Prices have retreated since, providing an opportunity to begin adding to the position. Below are a few charts elaborating the current gold story.

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Yield Curves Continue to Flatten

Equities are rallying, the FED looks like it wants to hike 3 times this years: good times are here again thanks to President Trump. However, the US Treasury yield curves continue to flatten.

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Golden Opportunities

The ongoing portfolio readjustment continues following a surprise Trump victory, one of the casualties of the latest market turbulence has been the yellow metal, falling over $100 US from a high of $1338.3 to the $1220 range. Periods of volatility like these provide an excellent opportunity to add position in anything that has exposure to precious metals, as the reasons for owning gold have increased significantly.

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LIBOR Tightening

As detailed in a Bloomberg article last week, a regulatory overhaul due to take effect October 14th, targeting money-fund industry has lead to a sharp increase in LIBOR as banks raise the cost of funding. The summer trading period was marked by surprisingly low volatility in the markets and strong cross asset correlation; this could be the explanation.

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Fed Paradox: Here’s your dual mandate, now what?

In December 2015 the Fed raised their overnight rate for the first time in 8 years, and signaled that 4 more rate hikes were on the table in 2016. Shortly after market sentiment deteriorated, leading to skepticism about the central bank’s projected rate path. With data signaling that Fed should move more aggressively than the market is currently anticipates, the Fed is at a crossroads.

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Global Growth and Low Yields

Markets had one of the worst starts on record in the first 2 months of 2016. A collapse in crude oil prices, lead to concerns of high yield exposure, but more importantly lead to negative sentiment regarding growth. In this post I will be showing some of the drivers that are sending yields lower.

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