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Gold Intermarket: time for a rebound, VIX testing 2007 lows and stocks overbought

Gold is -0.16% at 1,219.24 below the close of 1,221.23 and within a range of 1,218.25-1,225.74 with a YTD return of 6.43%.

The 52 WK range is between 1,122.89-1,375.34 and bearish momentum is growing with a close below the 200-d smoothed sma at 1,224.49. The DXY, on the other hand, is making tracks to the upside and has just managed to break even on the day at 99.65 within a range of 99.35-99.69 against a close of 99.65.  

Markets are pricing in the June expectations of a Fed hike where odds have risen to an 80% chance of a 25bp hike. Fed speakers have, for the most part, all been hawkish in respect to 2017 at least. The political environment, while still fragile, has hardened up to some extent on the expected outcome in Macron's victory and gave way to optimism around the status quo globalist and the market-friendly environment. 

Will the VIX take off from 2007 support again?

Stocks on Wall Street today are firmly buoyed on the optimism while the VIX remains at 23-year lows. Over the past three weeks, the VIX has been falling sharply by more than 40% and is testing the 2007 support, which, is technically a very firm area of support and in fact, it rallied hard from there during the financial crisis. 

Are stocks over done? 

Perhaps the market is being too complacent and is due to a correction that could be bullish for gold, bearish on stocks that are overbought and fueled on pure optimism. Keep an eye on U.S. fund investors who have just moved over to international stocks at the fastest pace in nearly two years while the US economy is showing signs of slowing down. Indeed, if Trump's recent firing of Comey delays his plans for the growth agenda, investors will start to second-guess that and it could put the "Trump trade" back into jeopardy. Gold, in fact, already edged off an 8-week low due to the Comey news. 

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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