After five months of losses, everything is falling into place for gold to get a reprieve, according to Bloomberg strategist Mark Cudmore.
Gold touched a 19-month low last week, down 15% from a peak in April.
Just as bears reach peak-excitement, the gold bugs are going to get some play time.
The catalyst will be the positive shift in the yuan, brought about by a significant spike in yuan forward points.
The link between the two assets is intuitive: dollar-yuan has become a dominant pair in influencing the broad dollar trend and gold is a relatively clean dollar play.
Further, dollar-yuan directly impacts China’s purchasing power for dollar-denominated commodities. That’s relevant when China is the largest importer of so many metals.
The gold bounce is being assisted by Trump’s latest comments on Fed policy and currency markets.
Two of the largest speculative positions in markets are the Treasuries short…
and the dollar long…
Both are suffering and that’s good for the yellow metal that also has an inverse relationship to real yields.
One positioning squeeze often begets another.
In an almost unprecedented move, net speculative positioning in gold and silver futures has collapsed in recent weeks.
As Peter Boockvar notes, “for those who care about gold such as myself, in the just released CFTC data for the week ended Tuesday, speculators went net short for the first time since December 2001 when gold was priced at $275 an ounce. It’s tough to find a more contrarian indicator.”
All this couldn’t come together at a more awkward time for gold bears: last week’s CFTC report showed that net gold shorts are at a record.
That means it could well be gold’s time to shine.