What is gold and bitcoin saying about the Australian dollar?

See the latest Australian dollar analysis here:

Macro Afternoon

DXY fell hard Friday night. EUR jumped, CNY fell:

The Australian dollar was firm:

Despite the bounce, the market actually got more short AUD last week at -65k contracts:

Gold tried and failed again to break out:

Oil rose:

Metals were soft:

Miners too:

EM stocks fell:

High yield too:

Treasuries were bashed:

Bunds smashed:

Aussie bonds were firm:

Stocks soft:

Westpac has the wrap:

Event Wrap

Markit’s preliminary June US PMIs slipped lower still in June, after plunging in May. The manufacturing index fell to 50.1 from 50.5, its lowest levels in almost a decade, while the services PMI fell to a three-year low of 50.7, from 50.9 last month. US existing home sales posted an encouraging 2.5% gain in May, led by single family homes.

Eurozone PMIs were slightly firmer than previous and expectations. The lift in the composite PMI (52.1, est. 52.0, prior 51.8) was more subdued than gains in the components due to depressed future optimism. The sluggish overall profile for 2Q PMIs suggests, according to Markit, 2Q GDP growth of a meagre +0.2%q/q.

ECB President Draghi repeated the core message of his Sintra speech when he addressed EU Leaders, stressing the lack of economic rebound and the potential need for further accommodation.

FOMC member Brainard said downside risks argues for a softening in the rate path, Kashkari admitted he dissented in favour of a 50bp rate cut at last week’s on-hold decision, and Bullard said he also dissented in favour of a an insurance cut.

Event Outlook

AustraliaRBA Governor Lowe participates in a panel discussion at the ANU Crawford Australian Leadership Forum, Canberra 9:30 am.

Germany: Jun IFO business climate index is expected decline to 97.5 from 97.9 after the ZEW survey expectations weakened sharply last week.

US: Jun Dallas Fed manufacturing index is released.

US existing home sales were out and were decent, aided by the massive long bond yield falls:

Existing-home sales rebounded in May, recording an increase in sales for the first time in two months, according to the National Association of Realtors®. Each of the four major U.S. regions saw a growth in sales, with the Northeast experiencing the biggest surge last month.

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, jumped 2.5% from April to a seasonally adjusted annual rate of 5.34 million in May. Total sales, however, are down 1.1% from a year ago (5.40 million in May 2018).

…Total housing inventory3 at the end of May increased to 1.92 million, up from 1.83 million existing homes available for sale in April and a 2.7% increase from 1.87 million a year ago. Unsold inventory is at a 4.3-month supply at the current sales pace, up from both the 4.2 month supply in April and from 4.2 months in May 2018.

US GDP forecasts are not dire. From Merrill Lynch:

1Q GDP is likely to be revised slightly higher to 3.2% in the final release next week, up from the second estimate of 3.1%. We continue to track 2.5% for 2Q GDP. [June 21 estimate]
emphasis added

From the NY Fed Nowcasting Report

The New York Fed Staff Nowcast stands at 1.4% for 2019:Q2 and 1.3% for 2019:Q3. [June 21 estimate].

And from the Altanta Fed: GDPNow

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2019 is 2.0 percent on June 18, down from 2.1 percent on June 14. [June 18 estimate]

Things are much better now than they were the last time that the Fed used insurance cuts in the 1990s:

But it does usually cut more not less than expected:

And the slowing global economy is real:

So, how dovish will the Fed be? By extension, how weak USD and how strong AUD? Gold is one place to look:

Gold has either overshot or it is signalling that USD is in for deeper falls than we have seen so far. After all, USD is yet to even break it uptrend. If we are so brave as to see signal in BTC, considered by some to be “virtual gold”, then it is saying the same thing:

My base case at this juncture is that the trade war and global growth gradually get worse, punctuated by market volatility and Fed saves which could give us yet more record highs for stocks. All other central banks will also be cutting, including the PBOC. That should be a mix that gradually increases downwards pressure on the USD but it can’t get overly far, either.

At the same time, trade war pressures should remain on the AUD plus fading bulk commodities though will probably be more a 2020 story.

It’s more an argument to be long AUD gold or BTC than it is short AUD itself. At least until the pressures build to some kind of outright shock that adds to the USD safe haven bid.

Houses and Holes
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  1. TheRedEconomistMEMBER

    I read AUD Gold meaning domestic gold miners?

    Don’t they get paid most in USD and covert back to AUD?

    Hoping for a dip. Sold NCM two weeks ago .. grrr

    • Depends where the mine is. I doubt Australian gold mines are selling dore to Perth Mint for USD…

      • That is both a fair point and kinda moot.

        It’s priced at the global price for spot, and 99% sure at the USD price for long term – regardless of the currency used at settlement. It takes seconds to convert to USD, EUR or whatever if they want to.

    • RedEconomist, whether you have made the right or wrong decision regarding NCM remains unclear, but it is always good idea to reflect on why you sold (or bought for that matter) in the first place.
      I assume that you sold NCM because you are bearish on the gold sector, or are you bullish on the gold sector but bearish on NCM.
      It is good to reflect on these things.

      • TheRedEconomistMEMBER

        Thanks Andrew

        Sold as I hit my Take Profit mark of plus 20% … So cant complain

        But the following day of me selling the OIl Tankers got torpedoed and Iran issues started to be priced in.

        Still a win… But could have let the profit run a little further.

    • AUD gold = gold priced in USD divided by AUD/USD exchange rate
      e.g. currently, AUD gold = USD1,404 / 0.69 = AUD2,034

    • It’s my choice ETF before going physical. But if S ever HTF in a big way, then Phys in your hands would still beat any counterparty/middleman/ETF…….

      Small goldies can give outstanding gains…. if they’re still there tomorrow.

      • Narapoia451MEMBER

        My thinking here is that while the shtf moment is likely inevitable at this point, my thinking is that it probably won’t hit over the investment lifetime in this vehicle. So I’m okay with the option to make it physical, but as Myne points out is it worth paying the premium for storage to have this option. Would paper for make more sense if it’s just a hedge \ wealth store?

      • AUD hedge, paper’s probably good enough. Global currency hedge/wealth store – Phys. Mad Max wealth store, a pallet of Baked Beans & some rocks to throw might be better. Everything has a space, time, security, opportunity cost – the payoff is, if it pays off…… the cost is like paying insurance, or the cost of doing business. It’s a personal choice based on your own crystal ball…. & you’ve got to be able to sleep with the choice. The pointy end might(?) be coming, but we still don’t know when, or how many stunts will be pulled between now & that moment. An old bloke once told me, referring to just this – Better to be a year early than a minute late. FWIW.