Below is a brief transcript from The Macro Show in which, earlier today, Hedgeye CEO Keith McCullough explained why gold prices were due for a pullback.
"The 10-year Treasury yield got smashed for a -12 basis point drop to 2.05% last week and the Financials (XLF) did not like that (leading the Sector losers last week at -2.7%); bouncing back to 2.09% this morning but the yield on the 10 year remains bearish TREND @Hedgeye for now with a Risk Range of 2.03-2.17%.
Gold loves nothing more than Real Rates Falling so it will finally correct this morning on the rates bounce after a +1.6% week that took it to +15.9% YTD.
The current risk range on gold is 1306 to 1360. That’s your batter’s box on gold. So if you’re long of gold and you like to risk manage it, as you approach 1360 you sell some gold. On the way back to 1306 you get to buy some back. For anyone who thinks that things don’t pull back after they go up, you should rethink that.
But the basic set-up here is gold is in a bullish trend because the 10-year bond yield is in a bearish trend.
The other thing to watch is the market’s positioning in an asset after the move. So this is the CFTC’s futures and options positioning which shows how how Wall Street is positioned (see chart below). Officially, gold is the most consensus net long position in macro. We define that as something that’s contract positioning is greater than 2 standard deviations relative to its 1-year average."