Gold Tops Out As Odds of Next Rate Hike Point Again to 2016 - ONE-TWENTY TWO: Trading Financial Markets

(This is an excerpt from an article I originally published on Seeking Alpha on July 21, 2016. Click here to read the entire piece.)

The post-Brexit run-up in the SPDR Gold Shares (GLD) ended today.

The SPDR Gold Shares (GLD) enjoyed a week of additional gains after the first post-Brexit gap up. Today's gap down of 1.4% officially ends that run-up. — The SPDR Gold Shares (GLD) enjoyed a week of additional gains after the first post-Brexit gap up. Today’s gap down of 1.4% officially ends that run-up.

Source: FreeStockCharts.com

The entire post-Brexit gap could easily fill if current momentum in other gold-related indicators continues.

{snip}

In the wake of Brexit, the odds for the next Fed rate hike went from a very likely December move to nowhere on the horizon... — In the wake of Brexit, the odds for the next Fed rate hike went from a very likely December move to nowhere on the horizon…

...now, the odds are dramatically higher for the next rate hike: as soon as December, 2016. — …now, the odds are dramatically higher for the next rate hike: as soon as December, 2016.

Source: CME FedWatch Tool

{snip}

The iShares 20+ Year Treasury Bond (TLT) is off its all-time high but still up a market-beating 15% year-to-date.

Source: FreeStockCharts.com

The volatility index, the VIX, confirms the market’s comfort level (aka complacency?). The VIX last closed this low on August 26, 2014. Since the financial crisis, the VIX experienced its lowest close on July 3, 2014 at 10.3.

This weekly view of the volatility index, the VIX, shows how post-Brexit relief has caused a volatility implosion.

Source: FreeStockCharts.com

The U.S. dollar index (UUP) is adding to the headwinds for gold. The index recently topped its 200-day moving average (DMA), a very bullish move. {snip}

The U.S. dollar index is breaking out. If it sustains this momentum, the U.S. dollar index will likely work against gains in gold.

Source: FreeStockCharts.com

And then there is the sentiment of speculators. {snip}

Speculators have not been this bullish on gold since at least 2008.

Source: Oanda’s CFTC’s Commitments of Traders

My favorite check on gold sentiment is the index for Google Trends on the search “buy gold.” I have been watching this indicator for over 8 years and the current episode has been the toughest yet to decipher. I have been on a vigil for a blow-off top in GLD since mid-June when sellers took down GLD in a technical topping pattern. {snip}

There was a very well-reported and notable spike in “buy gold” on the day after Brexit…

Interest in "buy gold" soared in the wake of Brexit. — Interest in “buy gold” soared in the wake of Brexit.

Source: Google Trends

But this spike was not quite enough to push the monthly trend to an extreme spike and the following weeks have not quite delivered either.

On a monthly basis, interest in buy gold has not registered an extreme.

On a weekly basis, buy gold sentiment is "elevated" but not quite at an extreme. Continued momentum could push the weekly and monthly sentiment measures to extremes. — On a weekly basis, buy gold sentiment is “elevated” but not quite at an extreme. Continued momentum could push the weekly and monthly sentiment measures to extremes.

Source: Google Trends

For my trading strategy, this potential topping in gold has meant I have stayed away from trading around my core GLD position since I sold my call options in VanEck Vectors Gold Miners ETF (GDX) in early June. {snip}

Be careful out there!

Full disclosure: long GLD, net long the U.S. dollar

(This is an excerpt from an article I originally published on Seeking Alpha on July 21, 2016. Click here to read the entire piece.)

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