Gold and silver have generally held their respective ranges since we last discussed and don't show much to encourage that the barriers will change anytime immediately. In many aspects, we have seen some healthy resetting of the table and a few of the things I would look for as encouraging have surfaced, but the supply-demand balance for physical is still worrying.

CFTC positioning and its tail, the EFP, have normalized a bit without hurting the market too much, mostly because ETF buying has resumed. The amount of long gamma in the market probably puts a ceiling on us, while the general nervous sentiment about the macro space (plus low interest rates) puts a floor in.

If vols remain close to their long run averages (15 percent and 30 percent for gold and silver, respectively) for another month or so, we can start to resume the bull case scenario as not every rally will immediately be sold for profit.

Bull Case

  • $10 trillion in negative-yielding sovereign debt globally. (If this remains static, has it at some point lost its wow factor?)
  • ETF buying continues. With 100K oz. adds becoming the norm (though yesterday redeemed around 200K).
  • September hike at 25 percent probability seems unlikely. November election cycle precludes 1 1/2 hike for the most part as well.
  • CFTC positioning seems to have established a comfortable (if extremely elevated) base. Without a paradigm shift in rates and risk markets, might this be the new normal?
  • Gold has established technical floors at 1,305-1,310 with further support at $1,300.
  • Without major fiscal stimulus in the U.S., is there a bullish broad economic/demographic case to be made?
  • Platinum! (see below)

Bear Case

  • Physical supply/demand significantly out of balance to supply overweight. Most institutional physical demand at these levels is just an EFP arb play (derivative of COMEX futures bid).
  • Econ Surprise Index now in the black. U.S. data is consistently beating (admittedly depressed) estimates. Has a strong correlation with future growth.
  • USDJPY is going to have to break through 100 for gold to have further move to the upside. Major resistance and betting on the BoJ is like betting on the Cubs.
  • JOLTS quits, job openings, pace of hiring all say the employment market is heating up and starting to favor labor v. capital.
  • Equity market sustaining highs despite (or perhaps because of) elevated fear levels and a much ballyhooed earnings recession.
  • The same dynamics driving money into metals are also driving equity sanguinity.
  • YTD performance for both gold and silver best in 10 years. You can chase it if you want, but I prefer to buy lows.
  • December hike odds at 50/50 seems too low, but there is a lot of data between here and there.
  • Also, it would mean we had yet another single-hike year, does 25 bps really matter? Only if it's indicative of a change from dovish to hawkish tendencies.

Chart 1

My current favorite chart: CFTC positioning and again on a cash basis (blue bold line). While it's always terrifying to say it's different this time and imply we can hold levels that formerly required oxygen masks, I think it will take a sea change in global risk to really start the change in sentiment on gold.

Once that does happen though, we have a long way to go positioning wise to even just mean-revert.

Chart 2

Somebody has to kill the dollar. Gold v. USDJPY (inverse) on top: 100 USDJPY has been major level since 2013, and a break there would probably make the headlines the world over. While I think gold is generally well supported by macro factors the world over at these levels, we need the next leg in the FX world to make another significant gain.

Lower portion is platinum breaking out of its range with the support of the South African Rand. Just in case you need something fun to put on your launchpad.

Coin Toss

I still think we are held in the range by summer vacations and long gamma positions, bias is to the upside drift, but the risk of the harder move is to the downside due to the positioning. Since I have to pick one, and we have drifted to the dead center of the range, I'll call it lower, if for nothing than risk bias.