Gold & SP500 Playbook

The risk appetite has swung as two major fundamental market drivers received a shot in the arm of optimism overnight.

1. “Trade Talks are going very well”, said President Trump after day 1 of the high-level trade talks
2. Brexit progress as the UK offer a Free Trade Agreement during meetings with Ireland

With the outcome still very much on a knife-edge the theme has been a reactive knee-jerk move followed by a reversal – mainly in SP500 futures, Gold and Risk FX such as the AUD.

There remains some hope, based on optimism that these talks can produce a swap if the US scale back or remove some of their imposed trade tariffs if China agrees to restart the buying of US Agriculture goods, but the clouds remain.

I remain a seller in Gold and a new Buyer in SP500 playing for a partial trade agreement to be agreed in principle when round 2 of high-level trade talks are completed today in Washington.

Let’s not forget that earnings season for the major US Banks kicks off next Monday, so there is an optimistic backdrop begging to build momentum – which will really encourage the Gold sellers to add to large scale bets of Gold trading lower.

The US Inflation data overnight was middle-of-the-road, so expect trade talks to totally dominate the next move for Gold & the USD.

My playbook in FX certainly tilts towards the long USD side of the risk spectrum and therefore to position short in Gold for a first target at $1,460.

Gold levels that matter are $1,488 on the swing low, for a breakdown move back to $1,460 – very likely in the closing stages of this week, but that $1,488 levels needs to break – and it can on a significant trade headline (Gold now $1,494).

For SP500, I am a buyer at 2,950 looking for a breakout to 3,000.

We have seen the optimism run wild before in US equities futures, and this round may be exactly more of the same.