Pound for bullion

Upcoming economic events (Singapore Local Time):

Upcoming Economic Events (Singapore Local Time):






ECB Interest Rate Decision



US Michigan Consumer Sentiment Index (March)



PBoC Interest Rate Decision



Fed Interest Rate Decision



BoE Interest Rate Decision



Durable Goods Order (February)

The following two weeks are packed with central banks’ interest rate decisions. Investors are paying close attention to whether the Fed will re-accelerate its pace of hiking, potentially by another 50bps.

Markets in Focus

Figure 1 Generic 1st 2-year Treasury Note Future (Monthly)

During his testimony before the House of Financial Service Committee, Fed Chairman Powell reiterated the policymaker’s position on the future path of rate hikes in response to the recent uptick in various economic indicators. US 2-year yield reached 5%, the highest in almost 16 years. The T-Note future price plummeted to the lowest point since 2006.

Figure 2 Generic 1st Gold Future

Despite facing multiple challenges, such as the Fed’s persistent hawkish stance, the real yield inching higher, and the US dollar strengthening, gold has managed to hold its ground above two crucial support levels. These include the psychological level of 1800 and the 500-day Exponential Moving Average (EMA), which has previously halted price declines on multiple occasions.

Figure 3 GBP/USD

The impact of the strong US dollar is increasingly felt in various markets. Although the British Pound had remained stable within a narrow range for a few months, it has recently experienced a breakdown. There is a possibility that the GBP/USD pair will continue to weaken.

Figure 4 Gold in GBP (Weekly)

Gold price in GBP terms paints a very different picture than Figure 2. The lackluster performance of gold (in USD terms) in the past few years was primarily due to the strength of the US dollar. Case in point, gold in GBP is trading near its all-time high. The Cup-and-Handle pattern is formed, and with more weakness coming for the Pound, gold will continue to shine. 

Figure 5 Soybean Oil Future (May 2023 Contract)

Soybean oil has recently broken through a significant horizontal support level below 60 and a symmetric triangle that had been forming for the past ten months. The decline will likely continue if soybean oil prices cannot see a decisive rebound quickly.

Our market views

Has gold lost its shine? Many investors tend to ask as they start to rethink if gold still deserves a place in their portfolios in this day and age. Once upon a time, when mild inflation was still highly sought after by global central banks but nowhere to be found, investors held the belief that when (and if) inflation did come back, gold would be an inflation hedge to preserve their purchasing power. That did not seem to happen. We witnessed US inflation going through the roof to a 50-year high of 9%, yet gold has gone nowhere since July 2020.

In the early days of central banks’ experiments with modern monetary policies, such as quantitative easing, many cool-headed investors believed these actions would ultimately lead to a loss of purchasing power in fiat currencies. This has made gold, with its finite supply, a valuable protection against such events. In the aftermath of the pandemic, global central banks have implemented unprecedented easing measures. Despite this, the gold price has only increased by less than 13% since the beginning of 2020.

Not to forget the ongoing tension between Russia and Ukraine and a potential escalation that could involve the entire NATO. Essentially, every scenario that was supposed to be very bullish gold happened, but every time gold seemingly failed to respond in a meaningful and lasting way. Or… perhaps it actually had, just not in the most obvious way that most have observed.

Looking at the gold price in non-USD terms, we see a vastly different picture. Since the 2020 low, the price of gold has increased by 25% in CNH, 30% in AUD, 34% in EUR, 39% in GBP, 50% in RUB, 60% in BRL, 61% in ZAR, and 96% in UAH (Ukrainian Hryvnia)! As it turned out, gold did precisely what it was supposed to do – it has functioned as an effective hedge against market turmoil and geopolitical conflicts, protecting the purchasing power in times of uncertainty. However, the strength of the USD has significantly dampened gold’s performance for USD investors.

We believe that gold still holds value and should continue to play a crucial role in investors’ portfolios, especially for those who do not primarily hold USD as their base currency. To express a bullish view on gold more tactically, investors can consider hedging their USD exposure, which is generally inversely correlated to the gold price.

How do we express our views

We consider expressing our views via the following hypothetical trades1:

Case study 1: long gold future

We would consider taking a long position on the gold future (GCJ3) at the present level of 1817 with a stop-loss below 1750, which could bring us a hypothetical maximum loss of 67 points. Looking at Figure 2, if the supports hold and the gold price rebounds, it has the potential to rally to 2050, a hypothetical gain of 233 points. Each point move in the gold future contract is USD 100.

Case study 2: short GBP/USD future

We would consider taking a short position on the GBP/USD future (6BM3) as a hedge against broad USD strength and synthetically construct a GBP-denominated gold position combined with Case study 1. The short position would be taken at the present level of 1.185 with a stop-loss above 1.25, which could bring us a hypothetical maximum loss of 0.065 points. Looking at Figure 3, if the rectangle breakout is confirmed and the decline continues, GBP/USD has the potential to reach 1.05, a hypothetical gain of 0.135 points. Each point move in the GBP/USD future contract is USD 62500.

1 Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.

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