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Remember when 3.25% on the 10yr meant the bond rally was over and yields would break out?

Gold at $1500

Gold’s advance looks unstoppable,  with prices striking through the big $1500 level as flagged in yesterday morning’s strategy note. The cue was a major melt-up in bonds. $1525-50 looks to be a big area to overcome with a tonne of horizontal past support around this region as the market seeks to overcome the April 2013 crash.  On the 1-hour chart we’ve got a nice bullish-looking flag formation too.

We’re seeing steep declines in US yields, which is providing the fuel for this rally. The US 10yr found 1.59% but has since pared the decline to move back to 1.7%. We’re seeing aggressive declines in bond yields and inversion along the curve. In particular the inversion between 3mo and 10yr Treasury notes stretched to the widest since 2007 yesterday. Although the bond rally lost some momentum later in the session, this recession indicator is flashing red. Real yields are almost negative with the 10yr TIPS as low as 0.9%. As noted before, a return to negative real US yields would be incredibly bullish for gold. We don’t yet know however whether the bond rally has enough legs to continue pushing down on yields, but in spite of the cooling yesterday this looks one-way for now.


US equities recovered from a weaker open to end the day essentially flat. The S&P 500 closed marginally higher, rallying 50 points from its lows of the day, while the Dow was marginally in the red as it moved about 500 higher from its lows. Futures now indicate a positive start. Again, though there is reason for bulls to be nervous about this stabilisation – for it’s nothing more than that for the time being. The failure to again breach the 2890 level is a concern. Trend support through the Dec 2018 lows and Jun ‘19 swing low now appears to acting as a resistance band above in the 2890-2900 region. 

European shares bounced on the open with the FTSE 100 advancing towards the 7240 level. The DAX has broken out through the important 11,740 level – look for a close above this today to give a bullish signal. Whilst we’re in the green, the nerves remain on edge.

Overnight the PBOC fixed the yuan slightly firmer than expected but it was above 7. USDCNH continues to trade on the 7 handle, around 7.07 at send time.  

Chinese data overnight has also eased some concerns with exports rising 3.3% in July, beating expectations for a 2% drop. Imports were down 5.3%, but this was compared with estimates for a decline of more than 8%. Meanwhile Japan has cooled tensions with South Korea over trade after approving a shipment of chip materials to the country. 

Oil weaker

Oil markets continue to suffer from weakening expectations for global growth. Brent has sunk below $56 but since recovered to around $57.80. A retest of the $50 looks possible. For bulls we need to look around the $59.50 level, the 61.8% retracement of the rally off the Dec 18 lows through to the 2019 highs. This level provided plenty of support through June and will be an important test. For WTI we’re looking at whether $54.50 can be retaken, the 50% retracement of its rally over that period.


EURUSD has stalled around the 1.12 level and cannot seem to break its 50% resistance. Meanwhile the pound is stuck in a very narrow range against the dollar and is holding right in the middle of that range. GBPUSD has barely budged all month – expect that change once the politicians come back from their August sabbaticals. US secretary of state Mike Pompeo says the US is ready ‘pen in hand’ to do a trade deal with Britain. This will only embolden the no-dealers.

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