Long Gold/AUD (From 25-Jun to 3-July)
Real-Time AmpGFX – stopped out of long Gold/AUD (Tue 7/3/2018 8:16 AM MT)
Unfortunately, this trade was stopped out.
Gold/AUD has rebounded sharply from the lows, and gold/USD may finally be finding its feet after touching down on its low in December. However, we were stopped out near the lows so far in Gold/AUD, as the AUD had bounced with CNY before gold started to recover.
I have no strong view that I should be getting back into this trade. It was intended to benefit from weak CNY and Asian EM. The thought process going in was that contagion from these markets would feedback to the USD and strengthen safe havens, like Gold and JPY, while AUD might also remain weak, but choppy.
The safe haven part of this trade did not work, and gold was surprisingly weak for other reasons that appear specific to gold. Its bounce from the lows may indicate a better outlook going forward, but my reasons for being in the trade need to be re-evaluated.
Real-Time AmpGFX – converted AUD/USD to AUD/Gold, comment (China, US, AUD) (Mon 6/25/2018 12:21 PM MT)
Bought one AUD/USD at 0.7401 to close short position
Bought half unit Gold/AUD at 1712.37 (new position)
Comment
The weakness in US equities reflects concern that US trade and investment policies will feedback negatively to the US economy. As such this could be negative for the USD, and encourage the market to seek a safe haven; potentially positive for gold.
Weakness in the USD is coming through the EUR and JPY, and may be limiting downside for the AUD/USD.
The lack of positive movement in gold/USD is confusing, but may be an opportunity to buy.
We sold AUD/USD in Asian trading on Monday as the Chinese currency and equities fell and Asia EM assets followed. Considering that the Chinese RRR cut over the weekend was probably designed in part to support Chinese asset markets, this is a negative development. However, we expect Chinese authorities to work harder this week to stabilize its asset markets. As such we are wary remaining short AUD/USD.
We also recall that last week back channels were being pursued between China and US officials to negotiate a peace deal on trade. Mnuchin comments that the investment restrictions are meant to apply to all, not just China, may be an indication that the US is still looking for some middle ground with China. But at the same time remain tough broadly on trade and protecting US industry.
We have reduced our position size (in dollar terms, although gold can be more volatile than currencies) to reflect less confidence in the downside for AUD, and converted it to a short AUD/gold to reflect our thoughts that the USD could be weaker on a backlash to US trade and investment policy.
Position
Long half unit Gold/AUD at 1712.37; s/l 1683.13
Our Capital at Risk: 171bp
By setting an initial stop loss of 1683.13, our (AmpGFX) percentage loss would be 1.71%. Based on our trade size this represents 171bp or 1.71% of our trading capital.
In the past, I have provided some guidance on the relative size of our trades using “units”. I am working on providing a clearer understanding of the actual amount of capital we have at risk, as reflected in the results we report on our website.
How much capital an investor will allocate to each trade will depend on their capital base (assets under management), risk tolerance, and how each new trade might be considered to add to the existing risk in the portfolio.
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