Is It Time For A Gold Rebound?

Summary

• Speculative gold longs declined by over 30,000 contracts on the week as they cut back positions.

• Despite the second straight week of declines, speculators still remain extremely long on gold.

• The current favorite to replace Janet Yellen is Kevin Warsh who is a noted inflation hawk and that added to last week's negative gold sentiment.

• USD speculative shorts remain extremely high and that will add a bit of a headwind to gold prices rising further.

We remain extremely bearish on gold as we wait for more speculators to close out positions.

The latest Commitment of Traders (COT) report showed a second straight week of declines in speculative longs as they continued to close out positions, while shorts continued to get bolder by increasing their own positions. We are finally seeing speculative gold positions returning to much more reasonable levels, though we remain on the long side.

The biggest event of last week outside of numerous Fed governor speeches (which aren’t all that eventful these days), was the rumored favoriting of Kevin Warsh by the Trump administration as the new Fed chair. This may have been a contributor to some of the weakness we saw in precious metals last week as Warsh has taken a more hawkish position on inflation than other Fed nominees. Back in 2009-2011, while still at the Fed, Warsh was keenly worried about inflation at a time when consumer price growth was actually deeply undershooting the central bank’s 2% target and unemployment remained very high. His concerns, since reiterated in the occasional opinion piece, have proven deeply misguided since the Fed continues to undershoot its inflation goal to this day.

Interestingly enough, Mr. Warsh is also married to Jane Lauder, the billionaire heiress of cosmetics giant Estee Lauder (NYSE:EL) a major Republican donor and a childhood friend of Trump’s. If that doesn’t get you on the inside track to the Fed chairmanship then we are not sure what does…

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