Last Night’s Activity
Gold retained it’s nervous and choppy tone (again, par for the course of a mkt at ATHs) last night trading between $2344 – $2360. It slipped to its $2344 low during Asian time against a modest uptick in the US dollar (DX up from 104.10 – 104.17). The dollar was lifted by:
- Yen weakness (151.70 – 151.90)
- Miss on Japan’s PPI MoM (0.2% vs exp 0.3%, 0.2% last)
- BOJ’s Ueda dovishness:
- emphasized persistent deflation posing challenges to influencing public inflation expectations
- ruled out rate hikes forcing the bank to raise rates
The yellow metal bounced to its $2360 high (within $5 of ATH $2365) during late Asian and early European time as the DX retreated (104.03) on position squaring ahead of the US CPI report. A small pullback in US bond yields contributed to the move, with the US 2yr from 4.747% – 4.728% and the US 10yr from 4.361% – 4.341%. Firmer equities provided a modest headwind for gold, however, with S&P futures up 13 to 5273. Gains in Nvidia (dip buying after it fell over 10% from its recent highs), Alibaba (Ma’s upbeat message, AI potential), Taiwan Semi (higher monthly rev), and Delta Air (earnings beat) led the advance.
Ongoing geopolitical tensions kept gold well bid:
- Russia and Ukraine trade accusations of attacking the Russian controlled Zaporizhzhia nuclear power plant
- 8 Nordic and Baltic nations support Ukraine’s bid to join the EU, call for additional military support
- UK and Ukraine sign arms production deal
- Russia’s conscription drive continues, exp 400k this yr
- Ukraine drones attack Russian city of Taganrog
- US restricts trade will additional 11 entities from Russia, China and the UAE for supporting Russia and attacks on MidEast oil tankers
- Israel – Hamas ceasefire remains elusive
- Israeli airstrike kills 3 sons of Hamas leader Haniyeh
- Iran’s Khamenei says Israel must be punished for consulate attack
Gold shrugged off news that the Shanghai Futures Exchange will impose trading limits on its gold contracts (along with copper) beginning 4/12 (max intraday position opening volume of 2800 lots) after the SHFE gold contract hit a fresh record (560.88 yuan/g), +16% this yr.
NY Time
The much awaited US CPI Report at 830AM was hotter than expected:
- CPI MoM higher (0.4% vs exp 0.3%, 0.4% last)
- Core CPI MoM higher (0.4% vs exp 0.3%, 0.4% last)
- CPI YoY higher (3.5% vs exp 3.4%, 3.2% last)
- Core CPI YoY higher (3.8% vs exp 3.7%, 3.8% last)
- Driving the increase:
- Energy + 1.1%
- Shelter costs +0.4% on the month and +5.7% from a year ago
- services + 0.5%
Market Reaction
The higher than expected report essentially took away the market’s expectation that the first FF rate cut would happen at the June meeting (57.7% chance yesterday to 16.9% now), pushing it back to Sep. Additionally, market expectations for rate cuts for the remained of the year were pulled in from 3 to 2. Equities sold off, with the S&P tumbling 65 pts to 5144. All 11 S&P sectors were in the red, with the rate sensitive Real Estate and Utilities sectors getting clobbered, off 4% and 2% respectively. Bond yields shot higher, with the US 2yr hitting 4.963% (+20bp, 5mo high), and the US 10yr touching 4.521%, both making fresh 5 month highs. The dollar rallied sharply, with the DX surging past 105 to 105.28, also to a 5mo high. Gold initially plunged to $2319, but then became choppy. Strong dip buying emerged – a regular feature for this mkt recently– that led a quick rebound to $2352. It then became choppy, diving back to $2330 before becoming steady between $2335 – $2340 (around yday’s $2337 low).
Technicals
Support:
$2337 (4/9 low), $2325 (options), $2319 (4/10 low), $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 yesterday’s fresh all time high at $2365 took the 14-day RSI back to the white hot overbought level of 85. Today’s pullback still leaves the market very overbought at 77.
FedWatch:
Last Friday’s robust US Payroll report along with generally more hawkish recent FedSpeak have pushed probabilities of FF rate cuts lower. Today’s hotter CPI went significantly further: it essentially shut the door on the Fed beginning to cut rates in June (prob down to 16.9%), and July (44.4%), and now expect them to begin in Sep (67.2%). Additionally, markets also reduced their expectation of cuts from 3 to 2 for the remainder of the year 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: 0.4% prob of cut to 5% or below
June: 16.9% 57.7% prob of cut to 5% or below (down from 57.7% yday)
July: 44.4% chance of cut to 5% or below
Sep: 67.2% prob of cut to 5% or lower
Nov: 31.7% prob of cut to 4.75% or lower
Dec ’24: 51.7% prob of a cut to 4.75%, or lower, only 18.4% chance of a cut to 4.5% or lower, reflecting expectations of only two 25bp cuts by yr end.
This compares to the most recent 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 (829 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: 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 4/10/24
by Jim Pogoda
Senior Trader / Analyst
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