Just when it seemed that gold had perhaps run out of steam trying to break the $1,200 mark, Donald Trump's press conference was scary enough to many investors to get the USD to weaken a bit and rates to come off and allow for further upside in metals.

As we've discussed before, regardless of your expectations for the next four years, the variance of those views and the routes we will take to get there have to leave room for these sorts of events. Simply put, the underlying economy could do great, the labor market could be Goldilocks and geopolitics could remain largely peaceful — yet we still run an elevated headline risk, especially for the next few months or quarters as we get used to a new regime.

Against that context, we expect to see equity volatility tick back at least toward its longer run average at 15 percent rather than the 11.5 percent implied by spot VIX (steep contango though, so this isn't sensational forecasting).

A good example of this is The Wall Street Journal story from last night regarding a Friday interview in which Trump criticized the dollar as too strong and the yuan as too weak. Combine that with British PM Theresa May's hard Brexit speech (and sterling higher), and we have a bit of weaker dollar and gold bid this morning.

Bull Case

  • Macro market view still seems overly sanguine. Even if trajectory is accurate, the path forward seems less likely to be smooth.
  • The U.K. choosing to forego the EU single market actually has the GBP up to 1.23 after being below 1.20 yesterday, but even that abrupt rally pales in comparison to the 1.50 pre-Brexit.
  • Gold ETFs actually added ounces! Don't call it a comeback.
  • Gold CFTC positioning still has plenty of room for further upside.
  • Short-term volatility has been subdued, and implieds are pricing accordingly. Even medium-term vols are about 1 σ below average and usually don't stay there long.
  • Backward-dated EFP shows a futures market that is perhaps a bit behind, and short covering could cause a squeeze.

Bear Case

  • Silver has some short-term positioning issues from CFTC and ETF length never having been resolved like it had in gold.
  • Even on the leg lower, DXY still holding onto 100 level (100.6 current).
  • Gold's 14-day RSI just ticked 70.0 this morning for the first time since the July top. We can usually maintain overbought status for a week or two before it becomes a drag.
  • Underlying economic data continues to be good. A tight labor market can start to drive inflation and cause a hawkish Fed before we know it.

Chart 1

As we continue the world's most orderly selloff and rally in gold history, we are nearing two critical points of resistance that are likely to converge around the time we get there.

The Downsloping 100 DMA is currently at $1,240, and a 50 percent retrace of the selloff since the election is $1,232. Also, notice the 14-day RSI on the lower portion of this chart, crossing the 70 overbought level today for the first time since the July peak.

Chart 2

Depressed vol. Different tenors, but both gold and equity vol have actually been fairly depressed/suppressed/repressed despite the elevated headline risk.

Perhaps markets have finally grown accustomed to limited powers of the American executive branch beyond the bully pulpit? Seems at odds with much of the hysterics you hear in anecdotes.

Coin Toss

Other than an ECB decision and a bunch of Fed speakers, it's a relatively light economic calendar. That means the inauguration and some early corporate earnings are likely to dominate the news flow.

As much as I worry about the price action alone being overbid, I think the lack of any excess positions and any meaningful technical resistance means we have clear path for further upside. Higher.