Precious metals are again attracting a lot of attention with Gold and Silver futures long positioning reaching the highest level since 2013 according to CFTC data. Long-term investors are also starting to jump in, on fear of missing out according to UBS research. China started a yuan-denominated gold fix to compete with London Bullion fixing, yet the impact gold price remains to be evaluated.
It looks like our first scenario on Gold ( Gold is a Win/Win) is starting to play out with precious metals moving alongside equity markets. Improved Chinese data and the weak USD are supporting commodity prices higher and Oil rebounded despite the negotiation breakdown in Doha (keep an eye on US Crude Oil inventory at 16:30 for a potential move towards April 13 high around $43). Both are increasing inflation prospects, which should keep any downside on precious metals fairly limited.
Equity markets continue to show strength with the break of important resistance level. The DAX broke above its 200 Day moving average which flattened out for the first time since September 2015. It also broke the 38.2% retracement level of the April 2015 high to the February bottom. Next target would appear at the 50% level at 10550 and 61.8% 10990.
Keep in mind that if Inflation is picking up towards mid/end year, it would bring the Fed’s rate hike back on the table. Right now a full 0.25 bp hike is not expected before 2017; any change to this expectation would dangerously hamper equity markets.