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Gold Market Report – April 09, 2024

Last Night’s Activity

Gold continued to soar last night, making 8th straight sessions of all time highs and reaching $2365. Market tone remained nervous and choppy – to be expected of a market making ATHs – as it traded between $2338 – $2365. While gold has largely ignored a fairly firm dollar (which remains near year’s highs) and relatively high US bond yields (hovering around 5 month highs) during this rally, with gold seemingly well out over its skis, last night’s move did benefit from a modest dip bond yields and a small slip in the dollar.
• DX slid from 104.14 – 104.01, hurt by a miss in the US NFIB Business Optimism Index
• 88.5 vs exp 90.2, 89.4 last
• Weakest in 11 yrs
• US 2yr yld off from 4.791% – 4.757%, US 10yr off from 4.425% – 4.379%

Gold also continued to receive support from Sunday’s announcement that the PBOC continued to purchase gold:
• PBOC added 5 tonnes of gold to reserves, which reached 72.74 M oz
• 17th consecutive month of additions
• Bulls see this as continuing to support the market, with gold making up only 4% of China’s reserves, many expect this % to increase
• However, bears see this small purchase (lowest in the 17mo period) and declining trend over the last 5 months as a signal that China’s appetite is waning

Outside of the PBOC, however, Chinese purchases of gold and gold ETFs has been frenzied (investors seeking alternatives with stock mkt and real estate persistently soft) and has certainly contributed to gold’s recent rally.

Equities were firmer and a slight headwind for gold with S&P futures up 14 to 5268. Gains in American Eagle Outfitters (upgrage by JPM), Freeport -McMoRan (upgrade by BoA), and Pfizer (respiratory vacc shows promise) led the advance.

Ongoing geopolitical tensions remained gold supportive:
• Russia hints at upcoming Putin / Xi meeting
• Russia’s For Min Lavrov in Beijing

• Ukraine struck Russian aviation production factory in Voronezh
• UK Foreign Secty Cameron in US to bolster support for Ukraine funding
• Russia, Ukraine exchange accusations of attacking the Zaporizhzhia nuclear power plant
• Israel – Hamas cease fire deal remains elusive
• Netanyahu says date for Rafah invasion has been set
• Cross border attacks between Hezbollah and Israel continue
• Israel braces for retaliatory strike from Iran after last week’s Israeli strike in Damascus killed several Iranian military officials
• Houthis claim to have launched rockets and drones at British, US, and Israeli ships in the Red Sea


NY Time

A miss on the US RCM / TIPP Economic Optimism Index (43.2 vs exp 44.2, 43.5 last) helped turn equities lower after a stronger open, with the S&P off 40 to 5161. Losses in Financials and Energy led decliners. A second consecutive decline in oil (WTI -$1.35 to $85.08) after it rallied $7 in 6 sessions from 3/27-4/5 (MidEast tensions, OPEC production cuts) weighed on the Energy sector. Bond yields continued to soften with the US 2yr down to 4.73%, and the US 10yr down to 4.359%. The DX became choppy, diving to 103.88, where it found support ahead of its 100-day MA (103.80), and rebounded to 104.16. Gold likewise turned choppy. After a pullback to $2345 ahead of the NY open, the yellow metal rebounded to $2364, but was unable to take out its overnight and ATH at $2365. The market then retreated back to support at its overnight low of $2338, before it became steady between $2342-50.


Technicals

Support:
$2338 (4/9 low), $2325 (options), $2300-03 (4/8 low, options),
$2266-67(4/3, 4/5 lows), $2247-50 (4/2 low, options), $2229 (4/1 low), $2187 (3/28 low), $2174-75 (3/27 low, options, 50% retracement of up move from 2/14 $1984 low to 4/9 $2365 ATH), $2157-68 (3/22, 3/25, 3/26 lows, $2146-50 (3/18, 3/19, 3/20 lows)

Resistance:
$2365 (4/9 All time high, options), $2375 (options), $2400 (options)

Overbought:
After rallying $211 (10.6%) from its 2/14 $1984 low to $2195 on 3/8, and $160 from 2/28-3/8, gold’s 14-day RSI shot to a white hot 85 – a level it hasn’t seen since March 2022 (Russian invasion). After a pullback over the subsequent 7 sessions to the 67 – 70 level, it shot back up to an overbought 75 on the rally to the $2222. After another dip to $2157 on 3/22, the rally to today’s fresh all time high at $2365 has taken the 14-day RSI back to the white hot overbought level of 85.

FedWatch:
Last Friday’s robust US Payroll report along with generally more hawkish recent FedSpeak have pushed probabilities of FF rate cuts lower. Markets still expect the Fed to kick this off their rate cutting at the June meeting (57.5% chance of first 25bp rate cut), and make 3 cuts this year down to 4.5%

FF Probabilities:
May: 2.7% prob of cut to 5% or below
June: 57.7% prob of cut to 5% or below
July: 75.2% chance of cut to 5% or below
Sep: 57.9% prob of cut to 4.75% or lower
Nov: 32.4% prob of cut to 4.5% or lower
Dec ’24: 55.8% prob of a cut to 4.5%, or lower, only 21.9% chance of a cut to 4.25% or lower, reflecting expectations of 3 25bp cuts by yr end.

This compares to the FOMC Dot Plot where 10 members are looking for 3 cuts to 4.5%, and 9 members are expecting 2 25bp cuts to 4.75%


Market Positioning

Last Friday’s CFTC’s COT Report as of 4/2 showed the large funds adding 15.8k and adding 7.8k contracts of longs to increase the Net Fund Long Position by 8k contracts to 207.3k contracts. This was done on gold’s advance from $2179 on 3/26 to $2280 on 4/2, reflecting a heavy amount of new longs but also some significant new shorts on the rally. Since then, this position is out at least 15-20k contracts on gold’s rally to $2365. At well over 200k contracts, this position is significantly large, and will be a significant bearish factor going forward.

GLD holdings:
After reaching 883 tonnes on 11/17/23, holdings became surprisingly steady / lower, sliding to just 815 tonnes on 3/12 – its lowest level since July 2019. This is despite gold’s $200+ move ($1980 – $2080) during that period. Though gold has rallied another $250+ since then, GLD holdings have only increased by around 15 tonnes to 825-30 tonnes (828 tonnes last). This continues to reflect a fair amount of profit taking from GLD longs into the rally, along with some diversification of AI assets into bitcoin ETFs (Bitcoin continues to surge, trading either side of $70k). This level for GLD holdings remains toward the lower end of the 730 tonne low in mid-2018, and 1350 tonne high from 12/2012, and can be viewed as a modest bullish factor going fwd.


Reports / Events

Today: US API Oil Inventories

Wed: BOJ Ueda Speech, US CPI, Wholesale Inv, EIA Oil Inv, 10yr note auction, FOMC Minutes, Monthly Budget Statement

Thurs: China’s Inflation, PPI, Vehicle Sales, New Yuan Loans, ECB Rate Decision, Lagarde Presser, US PPI, Jobless Claims

Fri: China’s Bal of Trade, Japan’s Ind Prod, Cap Util, German Inflation, GDP, ECB Survey of Professional Forecasters, US Export Prices, Import Prices, U. Michigan Consumer Sentiment, COT


Gold 4/09/24

by Jim Pogoda

Senior Trader / Analyst


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