Market View: Bearish gold below 1730; gold closed down 0.7%, ending a modest recovery; meanwhile, silver fell nearly 2.5%, recording its worst performance in nearly 6 weeks; The outlook for U.S. interest rates may play a more important role this week in terms of events ahead.
While gold is often viewed as a “safe-haven” asset, its correlation with the S&P 500 (one of the most recognized “risk” indicators) has been hovering around 0.86 on a rolling 20-day basis . A correlation reading of 0.86 implies a very strong positive correlation between the two, considering that the correlation ranges from +1 to -1. That’s not to say that gold won’t and won’t be influenced by fundamentals under different circumstances – the correlation may have been a thing of the past, and for now, we can look elsewhere for gold’s direction. For now, the more obvious motivation appears to stem from Federal Reserve (FED, that is, the Federal Reserve) interest rate expectations. Whether we blame this on the lack of any gains in gold due to rising interest rates, or view gold as a balance in USD terms, gold has a more pronounced negative correlation with the implied fed funds rate in June 2023 . That said, this week’s blockbuster economic data, such as Thursday’s PCE (personal consumption expenditures price index) inflation data and signals from Fed officials before entering a silent period (the first two weeks of the December rate decision), are likely to Bringing the market a major update on the outlook for interest rates.
Gold price action overlays 100- and 200-day SMAs, negative correlation between gold and June 2023 Fed rate expectations
Chart by Tradingview
As far as the United States is concerned, there are few heavy economic data on the economic calendar that can provide investors with a gauge of the potential of the US economy. However, as far as the fundamental background is concerned, I will keep a close eye on changes in interest rate expectations. In particular, Fed officials’ speeches so far have continued last week’s (hawkish) tone. Several Fed officials made a concerted effort to warn markets that terminal interest rates looked set to be higher than they had expected, while outspoken hawk James Bullard suggested on Monday that markets were undervaluing the Fed rate. interest risk. However, retail investors either simply ignored their signals or were skeptical. The fed funds futures market was little changed from last week, continuing to bet that the Fed will cut rates in the second half of 2023. Even dovish Fed officials have repeatedly stressed that they do not see a rate cut in the second half of 2023. In terms of speculative positioning, even though gold has failed to record any higher highs since the Nov. 15 high, the past week in the contract-for-difference (CFD) market has shown a sharp reduction in speculator interest in shorting gold, suggesting skepticism is on the way. Play a role.
IG Client Sentiment Indicator: Changes in gold retail positions (daily chart)
Source: DailyFX
Silver is expected to take some cues from gold’s movements. On Monday, silver fell 2.5%. Typically, the 20-day and 60-day (corresponding to 1 and 3 trading months, respectively) correlations for silver and gold show a clear positive correlation. Still, the two’s long-term relationship is still recovering from last month’s severe downturn. The potential volatility of the metals market has a lot to do with the volatility of the correlation. The more active the underlying market, the more fundamental differences between gold and silver will become apparent. In a risk-on market that may be bearish for the safe-haven asset gold, speculative interest will undoubtedly be deposited in the cheaper silver market. Volatility in most major markets faces serious fundamental risks this week, so if you’re watching those markets, you should be watching this relationship closely. (Translated by Lisa written by John Kicklighter)
Silver Futures Overlay Gold and GVZ Gold Volatility and 20- and 60-day Correlations (Daily Chart)
Chart by Tradingview
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