Occasionally, there doesn't seem like too much color to add to the market as it is fairly straightforward.

When the macro world's focus turns to all things USD and U.S. rates, we tend to see a really high negative correlation between USD and gold and, interestingly, a drop in realized volatility for metals. We have both of those going in spades right now as 40-day rolling correlations with USD/JPY are at minus-87 percent and 10-day even stronger at minus-94 percent.

As the majority of the USD moves these days are either driven by Good Trump/Bad Trump or by Fed Chair Janet Yellen dripping bits of hawkishness into the news flow, we are all basically reduced to being headline-watching screen monkeys while we wait for the next paradigm shift. Come quickly.

Bull Case

  • After a brief dose of Good Trump on Thursday, the inaugural press conference was an almost unmitigated disaster, and the DXY is taking a hard look at breaking 100 to the downside.
  • Make commodities great again — Ag and metals (not just precious) are on an absolute tear to start the year, and the energy space is up on a three-month basis. Momentum followers may be hopping in.
  • CFTC data shows gold specs have plenty of room to build long positions without upsetting the apple cart.
  • EFP in backwardation this close to the roll and sustained for the last couple of weeks may betray an overly short futures market (fast money).
  • Don't look now but ETF gold holdings are net higher since Jan. 9. We're back, baby!
  • HF's crowded short UST and crowded long USD means there is a likely pain trade here if nothing else.
  • We have held the uptrend, and I don't have any major resistance on the path until 100 DMA at $1,235 and then $1,250 behind it. Some minor friction at $1,212 from the Nov. 9 lows.
  • Too many people selling vol.

Bear Case

  • We are now 26 trading days into the rally since the Dec. 15 lows at $1,122 spot. That bottom came 26 trading days after the post-election peak.
  • While off the RSI highs, we are still at 64 on the 14-day RSI.
  • Economic data is on an absolute tear. Econ surprise indices are at highest since 2012, and no one is even talking about it.
  • Further, Atlanta Fed's GDPNow indicator reading 2.8 percent, and inflation expectations are ticking higher.
  • If Trump gets back on his economic message, stops reminding everyone how deeply insecure he is and just lets his cabinet do the policy-making, execution risks will drop — Good Trump.
  • U.S. oil total production is only off 5 percent from peak, and cost controls have improved. Massive producer hedging in futures and options may push WTI prices lower.

Chart 1

Get the dollar, get the gold. Top two lines are USD/JPY ("I was inverted") and gold. Bottom two are correlations between them on a 40-day and 10-day basis. This is the longest and strongest we have seen the 40-day correlation tighten.

Chart 2

Errbody short the 10-year treasury. Anticipating higher yields, the spec community has doubled the most recent net short positions of the 10-year. They pretty well got smoked the last couple of times, so third time is a charm?

Coin Toss

Risk to the downside is summarized by Good Trump and resumption of strong dollar. The positioning of spec markets in gold, dollar and rates says we have more pain to go on those. Frankly, Bad Trump seems more likely all things considered so expect continued strength. Higher.