Another wild week in the futures and commodities markets with Crypto Currencies (Bitcoin and Ether) taking the “brunt of the blow,” losing about half of their values over a two-week time frame. The sell-off came from new regulations in China indicating that “Banks cannot accept virtual currencies nor can banks exchange between crypto and Yuan or other currencies.” I always found it interesting that they call these digital tokens “currencies,” I mean, what currency falls 20% in a week? Not even the U.S. Dollar…yet.
In this article, I wanted to shift focus from general commodities and industrial metals and get right back to Gold. After posting an all-time high on August 7, 2020, at $2,067 an ounce, Gold has had its baggage, and the $400 sell-off since that high proves it. Faced with rising Treasury yields, market share competition from Crypto Currencies, and better options for the “inflation play,” Golds time for another run may be in the cards. To further help you understand the quantitative analyses of the precious metals markets, we created a free “Gold Trends Macro Book,” which has been updated with silver slides. You can request yours here: Free Gold Trends Macro Book.
Looking at the technicals, Gold officially broke out of its downtrend last Monday, and there are certainly apparent drivers. The first that stands out is the U.S. Dollar weakness, and Treasury Yield stability is both front and center. The U.S. Dollar Index dropped to the lowest level since February 25 and setting up next week to close at the lowest level since the first week of the year. As for Treasuries, since the melt-up in yields stalled in the first half of March, the weekly closing range of the 10-year yield has only been 15 basis points. In February, there were weeks when the 10-year yield essentially gained 15 basis points.
Daily Gold Chart
Most importantly, there is an impending worldwide shift in the way banks can use their Gold holdings. There are two classifications for Gold holdings: allocated and unallocated. Allocated Gold is wholly owned. However, unallocated Gold is lent out or hypothecated. After the Great Financial Crisis, Basel III was created to set the regulatory framework around the globe. They allowed unallocated Gold to be accounted for just as allocated Gold to boost the bank’s overall holdings. That framework will be rescinded at the end of June. In order words, the world’s Gold supply will theoretically shrink. Considering all these narratives, it is a great time to have Gold exposure. Although we do not recommend chasing price action and always lean on picking your spots, at the end of the day, what matters most is the sizing of your position in order to manage risk. If you would like to learn more about the strategies we are implementing or learn more about technical analysis, we created a guide to provide you with all the steps to create an actionable plan used as a foundation for entering and exiting the market. You can request yours here: 5-Step Technical Analysis Guide to Gold.