SPX - Relief Rally - Stimulus to the Rescue + Bonds/ Gold Update
Quick SPX update:
~ Expecting a brief relief rally (haven't we all)
~ Target is in between the 38.2% and the 50% Fib retracement (2,650 - 2,800)
~ Looking for a potential move to the 21 daily ema, at which point i will be looking to go bearish again
~ The move will likely be on the back of the "positive" stimulus news, but i am very skeptical of how the markets will respond to this, which ultimately amounts to an admission that Covid19 is crippling the US economy and that one should expect higher inflation moving forward
Additional Analysis:
Gold ---> I believe that there are many key factors moving forward (i will elaborate in a further post), these include the demand for physical beginning to outstrip supply (premiums are reflecting this), the issue of the futures contracts being used to drive prices down as a policy tool (to prevent a further erosion of confidence) and the fundamental drive of higher inflation expectations. Overall i am very bullish on Gold going forward, but i also am expecting to see some near-term weakness.
US Bonds ---> The end goal is zero, make no mistake, US10Y and a host of other maturities will hit the "zero bound" within 12 months or even sooner. This will present a host of challenges, namely it will significantly reduce the attractiveness of US Treasuries as a safe haven, this will most likely drive capital into gold, leaving the only buyers as the Federal Reserve, thus the US will enter a death spiral, furthering their dependence on low/ negative rates.
I believe the best way to play this macro outlook, is to leave US bonds alone, yes there will be capital gains to make, but the yields are already so low, better to let that train leave the station without you, the USD will appreciate, at least in the near-term, so a play on DXY is on the cards. But the better play in my opinion is to use the yields as an indicator as to when to shift focus to gold, as when US bonds hit the zero bound, the carry cost for gold is now a non-issue and the yellow metal is now a much more attractive safe haven. In fact, this may very well be a contributing factor to the growing strength of gold, as other investors will also be keenly watching the yields on US Treasuries.
- TradingEdge
~ Expecting a brief relief rally (haven't we all)
~ Target is in between the 38.2% and the 50% Fib retracement (2,650 - 2,800)
~ Looking for a potential move to the 21 daily ema, at which point i will be looking to go bearish again
~ The move will likely be on the back of the "positive" stimulus news, but i am very skeptical of how the markets will respond to this, which ultimately amounts to an admission that Covid19 is crippling the US economy and that one should expect higher inflation moving forward
Additional Analysis:
Gold ---> I believe that there are many key factors moving forward (i will elaborate in a further post), these include the demand for physical beginning to outstrip supply (premiums are reflecting this), the issue of the futures contracts being used to drive prices down as a policy tool (to prevent a further erosion of confidence) and the fundamental drive of higher inflation expectations. Overall i am very bullish on Gold going forward, but i also am expecting to see some near-term weakness.
US Bonds ---> The end goal is zero, make no mistake, US10Y and a host of other maturities will hit the "zero bound" within 12 months or even sooner. This will present a host of challenges, namely it will significantly reduce the attractiveness of US Treasuries as a safe haven, this will most likely drive capital into gold, leaving the only buyers as the Federal Reserve, thus the US will enter a death spiral, furthering their dependence on low/ negative rates.
I believe the best way to play this macro outlook, is to leave US bonds alone, yes there will be capital gains to make, but the yields are already so low, better to let that train leave the station without you, the USD will appreciate, at least in the near-term, so a play on DXY is on the cards. But the better play in my opinion is to use the yields as an indicator as to when to shift focus to gold, as when US bonds hit the zero bound, the carry cost for gold is now a non-issue and the yellow metal is now a much more attractive safe haven. In fact, this may very well be a contributing factor to the growing strength of gold, as other investors will also be keenly watching the yields on US Treasuries.
- TradingEdge
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