The Best Trade of Q3

Gold priced in GBP has undeniably been one of the best trades of 2019 and certainly so in the third quarter. Since basing at around £970 an ounce back at the beginning of May the price has risen almost 30%, to trade close to £1,250 an ounce, reaching a high of £1,249.10 in the early hours today. To better see how this trade has played out please take a look at a chart of gold priced in GBP below.

So, the only question to ask at this juncture; is whether or not this one has done enough and run its course, or is there more upside to come? Well, I think that a lot depends on severalmoving parts, but advocates of the worst case scenario for both the global economy and Brexit could easily argue that there’s a lot more left in the tank. Whilst I think that’s entirely possible I am always wary of getting too greedy on anything that has moved such a long way in such a short space of time.

Indeed, when I first noted the merits of this trade, only a few weeks back, I didn’t necessarily expect the price to extend this quickly and so given these meteoric gains its surely wise to at least bank some of the profits if one has them, whilst not abandoning what has been the best trade of the quarter by a country mile.

Elsewhere this morning the EURUSD and USD index remain inside the ranges I noted last week as the pennant on the USD index edges its way ever closer towards an eventual breakout. In terms of the EURUSD 1.1170-1.1250 probably still covers that with stops probably lurking either side of that range.

In fact, as I write here the EURUSD has just fallen back through that lower bound, removing stops below its 21dma (daily moving average at 1.1176) in a move that looks linkedin part to the GBPEUR rebounding back above 1.08 as I type. In addition, selling on the EURJPY to fresh interim lows is definitely in the mix as well.

The close on Friday for the GBPUSD at 1.2033 ensured that the pair fell for its 7th successive week. Once again 1.2000 looks increasingly magnetic although the price did stop just shy of reaching that level in Asian trading today, posting a fresh 2year low when bottoming out at 1.2015 ahead of the European reopening. The GBPEUR has fared even worse overnight, reaching its lowest level in almost a decade when trading to as low as 1.0724. There will be rebounds of course,as per this morning’s move, but until and unless anything significant changes, I simply cannot see those holding for too long.

Japanese markets were closed today and that probably explains the rather benign equity market performance overnight despite the Chinese currency moving lower. The USDCNH traded above 7.10 again, but is still yet to surpass its August 6th high of 7.1400.

Meantime the USDJPY continues to edge its way towards 105.00. I said last week that if seen, a breakdown through that level would not please the BOJ and that prospect probably explains the edginess of the current price action. The markets know only too well; that despite Japan being closed today, that doesn’t count for much when it comes to BOJ vigilance.

Data release wise this week there’s quite a bit to contend with on all sides of the pond and possibly the German/Eurozone data being more in the spotlight given the mounting concerns over the German economy. The latest Australian unemployment report (15/08) will certainly be of interest for the RBA watchers. Stateside, the latest US CPI report tomorrow is probably the one to grab most players’ attention. Oh and in case anyone missed it, the Italians are at it again!

Important Economic Releases Due This week

13/08- 9.30am UK July Unemployment Report

13/08- 10.00am German and Eurozone August ZEW Business Confidence Surveys

13/08- 11.00am US July NFIB Small Business Confidence Index

13/08- 1.30pm US July CPI Inflation Report

14/08- 3.00am China July Industrial Production and Retail Sales Data

14/08- 7.00am German Q2 (YOY) GDP Revision

14/08- 9.30am UK July CPI, RPI and PPI Inflation Reports

14/08- 10.00am Eurozone Q2 GDP Revision

15/08- 2.30am Australian July Unemployment Report

15/08- 9.30am UK July Retail Sales

15/08- 1.30pm US July Advanced Retail Sales

16/08- 3.00pm US University of Michigan August Consumer Sentiment Index