Senior Trader Update 12/04/2017

Good morning everyone,
 
Reasonable each-way interest was evident throughout Far Eastern trading yesterday as gold drifted lower from the TOCOM open before finding support when Chinese investors arrived and the metal then consolidated for the remainder of the Far Eastern session and into European trading.
 
GOLD/AUD & USD/GOLD ripped higher however, at the commencement of US trading as the remaining ’wood’ (selling orders) was chopped at the USD 1260 level and stop loss / stop-entry momentum buying was triggered, driving the metal to its highest level since the result of the US election became known on November 8th last year and well clear of its 200 Day moving average.
 
The geopolitical factors we have been alluding to in recent commentaries was the trigger for the surge, specifically the US navy’s Carl Vinson strike group moving from Singapore to the Korean peninsula - the significance of which was given added impetus by overnight comments from the Trump Administration stating that they are prepared to take unilateral action against North Korea (as in the case of Syria late last week), whether or not China assists in bringing the rogue nation to heel, particularly in regards to its nuclear program. Tensions were further inflamed with China mobilizing 150,0000 troops to the border. At the G7 meeting, overtures by British Foreign Secretary Boris Johnson for a ramping up of sanctions against the Russian Federation were dismissed. Meanwhile, reported comments from Russian President Putin claimed that the Federation’s leader had asserted that last week’s Sarin gas attack allegedly carried out by the Syrian government was a “false flag” event with more ‘false flags’ planned in order to bring about a US military intervention in Syria.
 
Given recent rhetoric and the 180 degree reversal of President’s Trump’s dovish foreign policy campaign promises, small wonder that investor nerves have become frayed and that gold has benefited from the perception of its traditional safe-haven asset role.  
 
Another potential driver of gold’s ascent being flagged by some pundits is the monetary policy of the US Federal Reserve with Fed Reserve Chairman Yellen quoted in the NY Times on April 10th that; “Looking forward, I think the economy is going to continue to grow at a moderate pace.  Our job is going to be to try to set monetary policy to sustain what we have achieved.” The interpretation being proffered that “accommodation” = the Fed will do what it can to make sure the interest rate tracks behind the inflation rate and creates a negative real rate of return on yield bearing assets and that a negative real rate of return has historically provided the foundation for and driven gold bull markets.
 
Elsewhere, the LBMA’s Gold Auction mechanism provided consternation and further ammunition for critics of the process, after the PM Gold Fix was declared USD 15 below the prevailing spot price at the time (USD 1252 vs USD 1267). Market sources report that after being marked down $2 on a 60K ozs seller-over imbalance, the price was marked down another $10, two dollars at a time, on just a 15K ozs imbalance.
 
Technically, the close at the top of the yesterday’s range in GOLD/AUD posted a bullish engulfing candlestick on the Daily chart and this combined with the move well beyond the 200 Day moving average should see a continuing advance. Support should now be seen at the previous solid resistance areas at USD 1260 / AUD 1690 & buying on dips remains favoured. GOLD/AUD topped out at a cluster of previous resistance around the psychological AUD 1700 level last seen in early November (the US election spike notwithstanding) but should this level yield, then the way opens to the high seen on US election day near AUD 1760.
 
Kind regards,
Andre