When I left the desk two weeks ago, gold was trading at $1,235 and hasn’t gone more than $20 either way from there since. With most headlines these days high on apoplectic shock and low on actual economic substance, we are all basically reduced to spewing ideological confirmation bias instead of looking at asset prices.

Perhaps the Fed minutes will shake things up a bit or Trump will actually deliver on his delinquent tax plan, but until then I have a hard time seeing how immigration speculation or "Can you believe what he just tweeted?" changes fundamental outlooks on prices.

I never thought I'd say this, but I almost miss the heretofore much-loathed Grexit headlines. I'd grow a hockey playoff solidarity beard to have Mario Draghi dominate headlines again.

Bull Case

  • Yes, we are in a rate hike cycle, but the Fed is behind the curve, so real rates are still inherently negative and asset prices will grow quicker than yields. Similar to 2003-2006 (discussed lower).
  • Marine Le Pen odds improving is bad for the Euro, good for uncertainty, good for gold, similar to Brexit.
  • XYZ crisis is looming that no one is ready for.

Bear Case

  • Economic data is significantly better than anyone gives it credit for. Inflation is picking up, and the market's expectations for rate hikes are far too dovish. Markets are going to be caught on the back foot.
  • Le Pen odds improving is bad for Euro, good for dollar, will knock down gold, similar to Trump initial rally.
  • XYZ crisis is "fighting the last war," and Dodd-Frank/Basel III/SIFI regulations ensure that you at least don't get contamination from the moral hazard.

Chart 1

After a dollar-rally-inspired selloff post-election and into year's end, gold has basically recovered to the confluence of the Q2 2016 sideways range, the downtrend from July to October and the three successive channels since the election. With moving averages basically on either side of current spot, we seem fairly hemmed in by a bunch of technical and psychological factors.

Put simply, most everyone seems comfortable with current gold prices, and the tug-of-war between bulls and bears appears to have some equilibrium. It will take a major headline of economic significance to break us out from the 1,200-1,270 range.

Every arb and derivative seems to be efficiently priced for the most part, and vol sellers continue to drive implieds down while historical vols underperform even still. We've seen this plenty of times before, and if I can recall anything it's that:

1. These periods can last longer than I would ever prefer.

2. When they break, it's often not for the reason I would suspect, and the gamma covering multiplies the scale.

Chart 2

Volatility for both gold and silver is hitting cyclic lows, especially the gold implied vol (white line, upper), which is near the 2016 lows. But that was spurred lower by realized vols (orange line) going south of 10 percent annualized, which we have not yet seen. Silver vols for both realized and implied are similar, plumbing lows not seen since 2014. Sleepy indeed.

Chart 3 (Bonus)

This is the 2003-2006 cycle, which I think is the best case for gold bullishness currently. Alan Greenspan drove a fairly aggressive rate hike cycle starting at 1 percent and reaching 5.25 percent only two years later (eight hikes per year!), but was generally viewed as being behind the curve well before he started.

Whatever your views on what caused the Great Recession, it is hard to argue that the desperate search for yield and inherent over-risking was a major contributor. Over this period of rate hikes, we saw equities rally substantially (though driven largely by earnings growth instead of multiple expansion) and gold double in three years while most of the gains took place with fairly low realized volatility.

I don't expect history to repeat itself, but it can certainly rhyme.

Coin Toss

I think the next move has to be dollar-driven as our correlations are still fairly tight despite a brief break with the USDJPY last week. Continuing to make all-time highs in equities while having single-digit volatility will make every equity manager's Sharpe ratio look fantastic.

That won't likely break metals either way, but can continue to distract macro managers from playing in commodities. Unless the Fed starts the hawkish headline cycle in advance of the March 15 meeting, I think the bias is toward higher.