Time for the Stone Roses Trade, long gold hedge unwind “Fools Gold”? +Oil +Japan + PBoC+ Yuan

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This is my current intraday trading view, which is much less critical than price action, as I can change my tune on a clean break of $1575/oz

Not all signals are aligned as risk sentiment endures, and while the long-term outlook for gold remains constructive, still, I’m struggling with the long gold strategy at the current price levels. In my view, the approach remains completely ill-defined at the moment, especially with S &P 500 make record highs. Until the yield on 10-year Inflation-indexed Treasuries starts to flash buying signals, bid on a deep dips remains a preferred strategy.

CTA’s are maxed long gold in their gold strategies, ETF positioning is stretched as is the IMM and given the Big gold trading banks’ ability to ramp up a gold paper and free up margins, the market could be ripe for a reversal if  US bond yields don’t move lower quickly. It wouldn’t be the first time we’ve seen this set up in the last 4-6 weeks.

Moving on 

Things a looking surprising stable in the wake of the P1 even more so after reports from mainland media suggesting China’s January data indicates a better-than-expected outlook. Which reinforces the notion that China has moved on with life without the US impulse.

Oil 

Commodities have reacted favorably to the headlines. Oil markets which are currently basking in the afterglow of China’s pledge to buy more than $50bn in energy supplies from the US over the next two year have caught a fresh bid on the headline. 

But the eye-watering products build and the prospects of a warmer winter could keep a lid on things but positive momentum is returning which is key.

Japan

Japan November machinery orders +5.3% y/y vs. -5.4% consensus, after -6.1% in October, and provide more positive signs of the green shoot. Heck before the day is over, I might even start thinking about getting back into the great global reflation trade of 2020

USDJPY remains glued to the psychological 110 magnet, however 

PBoC

Also, the PBoC continues to usher in an accommodative tone. Since the start of the week, the People’s Bank of China has changed the description of interbank liquidity to “reasonably ample level” from “relatively high level.” The shift in language is subtle but does indicate some concerns about liquidity that could tighten further into the Lunar New Year holiday. Expect the PBoC to keep conducting 7-day and 14-day reverse repos in the following days to offset liquidity gaps due to special bond issuance/ mid-month tax payment and cash demands before the 7-day Lunar New Year holidays.

The Yuan

I don’t currently have a CNH trading position as the liquidity issues are distorting the landscape. So, back to trading the headlines while respecting the anticipated FX liquidity drain as we move towards the LNY.