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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TD’s Wells Fargo Moment

Toronto Dominion Bank, better knows as TD is Canada’s largest retail bank. Last week allegations arouse that bank tellers sold products and added fees to customer accounts that were against the law because they were under pressure from ever aggressive sales targets. Aptly coined as TD’s Wells Fargo moment by John Aiken of Barclays, this post will serve as a comparison between the two scandals and for possible opportunities for those who live for the excitement of catching falling knives.

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Oil (USO) Position & Market Update

Today oil prices collapsed ~5% after a large 8 million barrel inventory build. I have closed half of my position at a ~50% gain before commissions and will likely close the remainder within the next 2 weeks. The move in the oil price was likely an overreaction to the headline, and its time to get constructive on oil prices and E&P equities.

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Short USO (Oil) – A Tempting risk/reward

The end of 2016 markets performance was marked by a strong surge into year end. This of course includes the oil market, which benefited from an OPEC deal to reduce production and strong commitment from Saudi Arabia for further cuts. But now three reasons are creating a favourable risk/reward for shorting oil. Uncertainty regarding OPEC deal and US shale producers, speculator exuberance and complacent option market volatility.

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Volatility rising in China Mainland again

The wild swings of the Chinese mainland market via ASHR CSI 300 China A-Shares ETF in 2015 have reserved a special place on my watch list. In essence, Chinese traders with new access to capital and leverage pushed up valuations of Chinese stocks, followed by 3 major collapses in price and government intervention finally stabilizing markets. This may become interesting again.

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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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US Election Trade: IShares Mexico ETF

Arguably the best gauge for the outcome of the US election has been the Mexican Peso, trading in lockstep with Trump’s polling results. For investors that don’t trade forex, the iShares MSCI Mexico Capped ETF (EWW), which tracks the MSCI Mexico IMI 25/50 Index, works just as well.

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Gold Positioning shift

With gold treading water above the key $1250, I created some analytics to take a closer look at positioning.

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Deutsche Downtrend

As part of her re-election campaign Angela Merkel, Germany’s chancellor re-affirmed the promise that her government would not bail out Deutsche Bank (DB) in the case of failure.

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Will Gold hold the line? Strategy for FED

It’s always interesting to see technical indicators at work. Gold is hitting a key resistance level before the FED’s announcement tomorrow. If there’s ever a make-or-break moment, it’s likely this week.

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