$XAUUSD: Monitoring positioning...Could gold be close to a long lasting bottom similar to the last time Commercial Hedgers covered their shorts and went net long? The last two times this happened we had a massive rally in precious metals each time. I do see some interesting variables at play that could prove a bottom in gold is happening.
We have some potential fundamental variables that could contribute to that:
The UK set a precedent for countries embarking on a more market friendly path, at the cost of rising deficits, to potentially attempt to save their local economies from the destruction rising rates and withdrawing liquidity (and hiking taxes) creates. If more countries start cutting taxes, and reversing their hawkish stances over time, we could see a reaction in the gold market.
China is at an interesting juncture, with rumors of a change in leadership, a big CCP congress coming and people clearly sick of zero COVID measures, if there is a change in those variables it could also set some big trades in motion.
Fed policy is already priced in by markets, bonds might be close to bottom or at a bottom, pricing in future rate cuts.
CPI print coming, slowing of inflation would further reinforce the idea that maybe doing what the UK is starting to do makes sense.
Many economists and fund managers agree that the Fed is making a mistake destroying the economy (and the world indirectly) attempting to curb inflation when the cause of inflation was govt action and lock downs and not monetary policy itself.
A recession is clearly in motion, and won't be resolved too quickly, but the effect on gold and other commodities might be quick once these puzzle pieces align.
From a technical, historical and positioning standpoint:
Futures positioning is approaching a critical juncture, if Commercial hedgers cover all shorts, we will get a big signal to go long Gold. Each time it happened we had massive and lasting rallies in precious metals.
At this pace, we can expect them to be flat or net long within 3-4 weeks.
There is a Time@Mode weekly signal that expires in exactly 3 weeks!
Yearly Time@Mode trend is up for another 3-4 years, and currently near a low risk buy zone with a stop @ 1517.18. If prices stay sideways after rallying above 1750, and maybe tagging the invasion level repeatedly, we could form a new yearly mode, which could propel gold higher for a few more years, once breaking out from the range, as per my chart. This fits with yearly time expiration in the long term $SPX chart and the idea that we are likely to see sideways/bearish action in markets to catch up to prior historical periods.
Oil is likely repeating a similar move as the period in the year 2000-2003 as well, this chart idea from @timwest suggests we can get a correction in oil, to then get a big rally until it peaks near $500. This also fits with the idea that we could get a similar move in equities as in 2000-2009. A big decline in oil eventually sets the stage for support in equities with a time lag of 6/12 months as well. At some point, more governments are likely to reverse course on their destructive hawkish ways following the UK, this could be probable after elections if Trump wins the presidency in the US. Just something to consider, this is net bullish for gold and oil likely, as it would increase deficits and stimulate the economy to come back from a recession, globally. The culprit, is lock downs and fiscal policy more so than monetary policy errors, people will gradually realize this.
All in all, I think the message is clear: odds of commodities outperforming equities are big, if we repeat a period like 2000 to 2011, or something like the 70s, and at some point we will get a clean shot at a bottom in oil and gold, which will likely be monster trades to put on. Stay away from equities, perhaps focus on miners, and other names that fared well in the aforementioned periods (some healthcare names did well, energy, gold and silver miners, copper/lithium). The EV adoption is a big fundamental trend as well, I think this sets the stage to get a big rally in lithium, for which I am positioned already in $LTHM. Have to time it well in regards to metals and oil, but we are getting closer to getting clarity on this home run trend and I think gold is a big and important cue to get a sense of timing here.
Best of luck!
Ivan Labrie.
