Global Macro: Gold Pushes Higher on Volatility

NEW YORK ( TheStreet) -- Volatility returns to the marketplace as we near the much anticipated September Federal Reserve meeting. Analysts believe that September will be the chosen start date to rein in the Fed's unprecedented monetary stimulus.

The charts below highlight how assets in the futures market have reacted to uncertainty of future monetary policy. By analyzing futures, we can look at a wide range of liquid assets to determine to where money is flowing and what the current expectations for financial markets are.

The first chart below is of the gold futures. Gold has been heavily sold, as investors have priced in lower inflation expectations and a stronger dollar. An ETF that closely tracks gold futures is the SPDR Gold Shares ( GLD).

Gold futures broke out to the upside on Thursday and look to have room to push higher. The U.S. dollar has sold off due to a lack of transparency over its future value. Similarly, the VIX, a volatility index, broke higher from its lows (as I stated in a previous article) and gold has followed it.

Gold correlates very strongly to volatility, which in turn correlates inversely to equity indexes. It is expected to see volatility and gold catch a bid together as investors have to move their money out of riskier assets during times of fear. The dollar is not an option, because investors do not want to try and outguess the Fed. Therefore, gold will continue to push higher as we approach the September meeting.

The next chart is of Treasury Bond Futures. Although the U.S. dollar continues to weaken, the Treasury market is persistent in pushing rates higher. Bond investors are pricing in an end to stimulus and accommodative policy in general, regardless of whether it is September or later this year.

An ETF that closely tracks bond futures is iShares Barclays 20+ Year Treasury Bond ( TLT).

As can be seen in the chart below, the 20-day exponential moving average, which gives greater weight to near-term price action compared to a simple moving average, is trending strongly downward.

When the price of the long bond does cross above the moving average, it is only for a few days at most, then the price retreats. Until this trend can reverse, prices will continue to decline and rates will move to higher levels.

The final chart is of the E-Mini S&P 500 Futures. As rates have risen and volatility has increased, this has pushed the equity index below its highs. An ETF that closely follows S&P futures is the SPDR S&P 500 ( SPY).

It looks as if the S&P has formed a clear head-and-shoulders topping pattern and has since pushed lower from its highs. Although a strong downtrend might not commence immediately, it does seem as if the index will push toward the 1600 levels.

Expect over the next few weeks for gold and volatility to advance, bond yields to continue higher and equities to show weakness leading into September.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.