Over the last week, gold and silver are up $60 and $1.10, respectively, and have blown through most every technical level you could ask for. The next major resistance is both a major psych level and the long-term down trend that started in 2014.

To set aside all of the technical speak and economic indicators, the world is basically in Chicken Little mode right now. Markets have almost entirely removed the prospect of Fed action until at least December, and even then it's only a 30 percent probability. The U.S. dollar is off some 3.5 percent from its recent highs, and Japanese government bonds are negative all the way out past 10 years. They are the first G7 nation to ever experience such a phenomenon.

Gold has had a massive inflow of investor demand into ETFs and related products on the back of safe-haven demand, despite a lack of Eastern hemisphere interest. We are likely overbought at these levels, but the long-term trend is still supportive, even after a potential breather.

Bull Case

  • Friday's reversal after the jobs data was the most bullish single day I have seen since Dec. 1, 2014. The stronger wage growth knocked almost $20 before igniting a $35 rally and closing on the highs. Light volume, but the bid was relentless.
  • Gold ETFs have added 3.4 mm oz. That is a massive build and puts us back to levels from last summer. Spot has basically responded accordingly.
  • The market has almost completely repriced the curve for Fed hikes this year to nil. We've said it before, but the carry cost and expected opportunity cost on gold are extremely important. Both are coming down quickly these days.
  • Trump v. Sanders?
  • Asia is mostly out this week and has been consistent seller of late. Is Golden Week paradoxically our chance to break and hold $1,200?
  • Crazy call fly's going through in block trades for big premiums. Lottery tickets are a great first start to real money guys renewing interest in precious.
  • DXY is off 3.5 percent from its cyclic highs. Over the next six months, this might ease some of the pressure on U.S. manufacturing, though.
  • Rates all over the world are low and getting lower. U.S. 10-year is now.

Bear Case

  • Supposedly much of the equity chaos is due to Sovereign Wealth Funds liquidating their high-quality holdings to raise cash in the face of falling oil. Could have minimal knock-on.
  • Oil is perhaps grinding out a bottom around $30 front month. The widely expected bankruptcy and merger cycle has been fairly mild so far. More to come or are balance sheets better than we think?
  • Market P/E multiples have moderated as a result of the 12 percent drop in prices in the S&P 500.
  • Equity selloffs might lead to some rebalancing sales in the seemingly only asset trading higher YTD. XAU up 13.5 percent. XAG up 12 percent. SPX down 11.5 percent. Relative value plays for the 2.2 percent-plus average dividend in SPX?
  • Producer hedging seems to be picking up near $1,200, and I hear majors might even be dusting off their forward books much higher than this.
  • Consumer confidence is doing well (relatively), hanging out near highs since 2007. Cheap gas helps, and wage growth is improving.
  • $1,200 rejection yesterday and some long-run downtrends at $1,200 and $1,240 before this is a true breakout.
  • Daily RSI is massively overbought at 80, and the weekly is getting near 64. Neither has been this high since Sep 2012.
  • Silver ETF have seen continued slow liquidation since mid-December.
  • Call skew is massive and has even gone positive out to one year for the first time since 2013. That has not happened since 2013 and is either indicative of a peak (last three years) or a lead up to a secular rally (2006-2012).

Chart 1

The road ahead. After having gone parabolic through all three major moving averages, gold has run headlong into $1,200 and failed a test yesterday. $1,200 and $1,240 are very important to sustain momentum.

Chart 2

The all-encompassing. GLD-specific holdings are the red line in top portion, strong, proportional move higher to spot prices. Middle portion is 1m atm vols, which have popped substantially from 13.3 at BoY to 18+ now. and the daily RSI is along the bottom. This screams that we are overbought, but I don't know that anyone is listening.

Coin Toss

After the parabolic move higher from the last three trading days and the failed move through $1,200 yesterday, I think we are due for a breather. We expect volatility to remain elevated and will look for a further breakout in vols as indicative of a continued change in interest in the market.

With Fed Futures basically flat now, I'm not sure that repricing can provide much further of a tailwind, and any dollar rebound could provide some confidence in those looking to buy equities and other risk assets for long-term holdings. I am cautiously optimistic that we are making a secular change in the trend for metals and look for medium-term higher prices, but see us overbought here by a number of metrics. Lower.