Commodities Market

Gold is knocking on the door of record highs heading into what has recently been an extremely strong period for bullion prices. But having rallied so hard since early October, it comes across as being priced for perfection near-term.

When yen bulls increase their long exposure by 40% in a week, it is probably worth noting. Especially when large speculators had pushed net-short exposure to a 6-year high the week prior. Every turning point must start somewhere, and I continue to suspect this turning point already has.

A softer US dollar has helped AUD/USD and gold push towards key technical levels, suggesting the near-term price performance may determine their longer-term trajectory as we head towards 2024.

Gold faces an interesting start to the week with the US dollar falling to fresh two-month lows ahead of a key US Treasury auction, the latter providing an obvious catalyst that could dictate whether we see a retest of resistance above $2000.

EUR/USD bears continued to trim shorts while large speculators added to longs. Whilst this might not be a bullish bet on the strength of Europe, it may well be a bet against the US dollar. And with the 2-year note holding above key support and shorts being trimmed, it hints at lower yields and a weaker US dollar.

In a week when there’s little market moving macroeconomic events scheduled, fresh US Treasury auctions are likely to steal the spotlight. Yield sensitive assets such as gold and USD/JPY will be paying particularly close attention.

While AUD/USD and WTI are two separate assets, their underwhelming performance recently is undeniably linked: global economic growth concerns are intensifying.

It’s noticeable how liquid cyclical assets have not been able to extend the rally sparked by the soft US CPI report for October, including crude oil which is struggling to muster a bid.

Large speculators increased their gross-long exposure to AUD/USD futures by 17.1% and trimmed shorts by -2.9% on the day of the RBA’s last hike. And this could be a significant development when you consider net-short exposure recently hit a record level of bearishness just six weeks ago, yet prices defied bears with a sustainable break beneath 63c.

US benchmark bond yields look like they may have bottomed in the near-term, an outcome that may generate additional headwinds for gold at time when it’s already struggling.

AUD/USD and gold have struggled in November, giving back some of the gains achieved in late October. With both sitting near key levels, we look at the prospects for a bounce or extension of the pullback in the days ahead.