I got into the gold and silver complex back in 2021 and built up positions in the $1,700 to $1,950/oz range. The macro was already indicating an upcoming bull market way before this time.
Yes, agree that seasonality is an important factor, however it depends on the longer term trend. Between 2020 and 2022 when gold was in a long term consolidation phase, it indeed performed poorly in September as well as other months. IMO, we have since the break out above $2,100 re-engaged the long term bull market and may see a different dynamic this September. Yes, the best low risk entries were months / years ago, anyone getting in now risk getting whipsawed or chasing prices higher.
IMO, the major driving force will be the global debt levels and the negative real rates / fiat degradation that they’ll entail. This will take quite a while to play out so I’ll be hanging on a bit longer as my target is way, way above $2700
So USDCHF is now back down to its recent low @0.8400. Going by statistics, the probable scenario is an undercut of this level to make a low in the red shaded area before we see a bounce higher, i.e. blue path and arrow:
Unfortunately a long trade here is a bit too risky for me as there are too many worrying factors:
DXY has a lot of downward momentum
CHF is clearly the strongest performing major currency
The Nikkei, STOXX50, STOXX600, global banking sector, T-bonds, S&P500 futures, Nasdaq futures and junk bonds are making me very nervous.
A USDCHF long is counter to the long term bearish trend that is still in the very early stages and has plenty of downside energy, thus limiting upside potential
With nearly every major central bank other than the Fed and BoJ already easing, combined with the fact that the BoJ is virtually impotent to change the current JP fiscal course and the debt markets wound as tight as they are, the USD is going to be the only politically acceptable release valve. And when the pressure gets released it could be quite explosive to the downside.
Having said all this, I don’t have a crystal ball so a long play here could work out but we all need to play our own convictions. My plan here is to continue to hold on to my short position and if/when we get a bounce, I’ll add to the short position around the 50DMA.
For those reading this thread, it’s good to keep in mind that even though both @BeSomebodyFX and I use fundamentals in our analyses, we clearly have different time horizons and risk tolerances. These are personal preferences and one is in no way better than the other.
If it isn’t already obvious BeSomebodyFX has a much shorter time horizon than me. The shorter the time horizon, the greater the impact (and opportunities) that economic data and news releases will have. In this case, getting an idea of the expected outcome that markets are pricing in is a great way to take advantage potential opportunities.
Unfortunately for me, NFP is just a mere blip on the screen so not as big of an opportunity for me as for @BeSomebodyFX, but on the other hand I can check in on the NFP release in between holes on the golf course!
Getting stopped out is part of the game and unavoidable, even for the most experienced pro traders.
The mark of any good trader is how well they manage the downside. One of the best traders I know has been an institutional trader for over 40+ years. He often gets stopped out multiple times before he catches the reversal and the trade runs how he anticipated. The reason why he is one of the best is because his losses are tiny compared to how far his positions can run. He takes on average 1 trade a month, I’d guess his win rate is around 30% and R:R is 1:50 or higher (that’s not a typo, his profits are at least 50 (fifty!) times his risk).
Two of the biggest lessons I’ve learned about economic data releases (what many would mistakenly refer to as “fundamentals”) is:
They are lagging, backwards-looking indicators
They can create short term volatility but have a negligible impact on the long term trend.
Let’s take Wednesday’s CPI number:
Prior to the release, markets priced in a 42% probability of a 50 bps rate cut and 58% probability of a 25% bps cut at the next FOMC.
CPI numbers came in more or less around expectations.
Markets repriced to an 18% probability of 50bps cut and 82% probability of 25 bps cut.
Mainstream “financial analysts” were adamant that CPI numbers coming in around expectations were the reasons for this repricing of rate policy expectations
Markets are pricing in a 45% chance of a 50 bps rate cut at the next FOMC, what’s changed in 24 hours? Nothing, the CPI numbers were a short term distraction and had nothing to do with rate expectations as it’s a lagging indicator.
What’s even more interesting but no one is talking about it, markets are pricing in a more aggressive rate cutting cycle than 2 weeks, resp 4 weeks ago (darker aqua colored dotted lines)
You can also see this reflected in the incredibly weak price action in the USD / DXY (should have tagged 104 by now based on historical trend statistics), strong bullish breakout in T-bonds, bull steepening with yields falling across the entire curve, the very weak banking sector and gold breaking out to new ATHs.
All this combined is a stark signal: money market investors believe we’re headed for a global recession and are acting accordingly. This was in the cards long before the CPI numbers came out
Markets see that as a “leak” from the FED during the blackout period to set up expectations for a 50bps.
They rarely want to surprise market expectations, so if they want to cut 50bps next week they have to bring market pricing close to at least 60% or 70%.
Usually they would do that with regular FED comments, but during the blackout period they can’t comment so they “leak” stuff to mainstream media, usually the WSJ.
So the market has sniffed that.
Agree!
The yield curve deinversion was the confirmation.
Not a short term view tho.
That (yield curve disinversion) signal usually signals a recession to start anywhere over the next 6 to 12 months.
So that’s more a bigger picture type of view, yes.
Exactly as you wrote, I’m a big picture, tectonic plates, macro-technical guy and I’m looking several weeks / months (sometimes years) ahead. It’s important to keep that in mind when reading my comments.
