Senior Trader Update 29th May

Good morning everyone and I trust you had a good weekend.
 
Well, gold and silver surged higher on Friday and I must admit I am at a bit of a loss as to the reason(s) why.
 
It’s probably best to lay out a few points of interest but it would be drawing a very long bow to suggest that any of them were compelling reasons for the surge in precious metals.
 
Firstly, today is a long weekend in both the UK (Spring Bank Holiday) and the US (Memorial Day). It is quite possible that any booksquaring or buying as insurance against geopolitical developments arising when the markets are closed, was greatly amplified due to liquidity draining away ahead of the long weekend.
 
Looking at market correlations, the US Dollar Index rallied and finished near its day’s highs (normally this would weigh on precious metals values) and US equity indexes, whilst tracking sideways, also loitered near recent highs (again, a factor that would generally weigh upon precious metals values).
 
It is possible that some investors were positioning for what is presently the contrarian trade, that the US Federal Reserve contrary to market consensus, will not hike rates at the June FOMC meeting in a few weeks.
 
Drawing a really long bow, the US press were carrying story’s the President Trump’s son-in-law was under FBI investigation for potential connections to “The Russians” (a potential cause of instability within the Trump Administration).
 
On the economic data release front from the US, April Durable Goods Orders fell by 0.7% to $231.2 billion (vs -1.1% expected), the May University of Michigan sentiment index (final) was revised down to 97.1 (vs 97.5 expected and vs 97.7 preliminary and 97.0 in April).
 
Finally (and I’ve been reticent to draw attention to it, however it’s been receiving a lot of press), the cryptocurrency Bitcoin which had surged to record highs at USD 2,779, saw 10% of its ‘value’ erased on Friday (Daily chart going back 2 years attached, illustrating the recent parabolic move). Whilst there is no doubt that Bitcoin has gained considerable traction as a medium of exchange, it would be hard to argue the case for ‘store of value’ on the back of 10% reversals intraday.
 
Turning to the latest CFTC Commitments of Traders (as at May 23rd);
 
·         Gold non-commercial speculative longs returned to the market in numbers as short speculative positioning was reduced - a net change in length of almost 4 mio ozs (Futures & Options Combined). This was likely due to the latest FOMC Minutes giving investors pause for thought regarding the prospect of a June interest rate hike. Also supportive, the near daily confusion surrounding investigations, allegations, claims and denials in relation to the Trump Administration.
 
·         Silver non-commercial speculative positioning saw long liquidation but it was overwhelming shortcovering that provided the bounce in the white metal.
 
·         Similarly, platinum saw long liquidation from the non-commercial speculative community but this was also overwhelmed by shortcovering which bolstered values.
 
·         Long liquidation characterised the shift in palladium non-commercial speculative positioning with some modest shortcovering evident.

Technically, XAU/AUD has now moved back within range of the formidable AUD 1700/1710 technical resistance zone but unless this level is breached, in broader terms XAU/AUD remains an AUD 1650 - 1710 range-trading proposition.
 
The XAU/USD Daily price action remains contained within a triangular congestion region (with trendline support pegged at USD 1227 & trendline resistance at USD 1276 for today). Momentum buying or momentum selling is likely to ensue depending on which side of the congestion region gold eventually breaks out from.
 
Markets will be effectively closed today once the Far East is done for the day.
 
Good luck and have a good week ahead.
 
Regards,
Andre