Senior Trader Daily Update 16 August 2017

Good morning everyone,
 
Precious metals activity yesterday followed in much the same vein as Monday. That being, that as the US Administration and North Korea took their recent thermonuclear war rhetoric down a notch, investors were enticed back to the ‘risk on’ trade, driving US equities back towards record highs and propelling the US Dollar Index higher as the Greenback strengthened across all the major pairs (EUR, JPY, AUD). This consequently led to softer precious metals values as the major cause of the latest advance (i.e. geopolitical heat), received less prominence and fed a continuation of profit taking and speculative long liquidation in the metals.
 
That notwithstanding, the Korean peninsula, the Middle East, Iran, Venezuela and Russia all remain US foreign policy flashpoints, not to mention the febrile domestic political climate resulting from the weekend’s riots / clashes in Charlottesville, Virginia. Only the brave or foolhardy would choose to downgrade the potential for these matters to rapidly re-ignite or escalate, fuelling a climate of uncertainty and fear in the minds of investors which should continue to underpin the precious metals. Dips therefore are likely to remain well supported for the time being.
 
There is nothing to suggest that the paring of gains seen in gold and silver since the start of the week is anything other than technical ‘back-filling’.
 
While XAU/AUD continues its present sideways price action, Richard Donchian’s observation that: “A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move.  Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected”, remains favoured.
 
XAU/USD remains confined within the well-defined sideways range between USD 1205 & USD 1300. The major trendline resistance just beneath the psychologically and technically important USD 1300.00 level is to be afforded due respect. It was noted yesterday that some mean-reversion back towards the 21 Day moving average at USD 1264 could not be ruled out and XAU/USD headed in that direction. This speculative re-balancing can certainly be construed as constructive as it would provide gold with a more solid foundation from which to attempt a breakout above the ceiling that has held it in check since November last year.
 
As noted yesterday, the significant level of open interest in COMEX Gold (December) Call Options at the USD 1300 & USD 1350 strikes should also be borne in mind. The USD 1300 level would likely be aggressively defended by Call grantors but the large level of open interest gathered at the 1300 strike has the potential to add powerful momentum to any topside breakout as a scramble to cover exposures is triggered.
 
Good luck.
 
Regards,
Andre