Last Night’s Activity
Though the Iranian retaliatory drone and missile attack against Israel on Saturday was militarily ineffective, it did represent a significant escalation to the Israel – Hamas conflict (first time Israel was attacked by Iran directly in modern history). However, with markets priced Friday to expect worse, the largely telegraphed attack was viewed as a non-event by Sunday night, and the safe havens (bonds, dollar, oil, and gold) retreated. The DX pulled back from near 5-mo highs at 106.04 to 105.84. US bond yields climbed with the US 2yr from 4.882% – 4.961%, and the US 10yr from 4.497% – 4.584%. Equities rallied ,with S&P futures up 29 to 5197. Stocks were helped by Goldman (stronger earnings, surge in trading and investment banking), Cisco (upgrade by BOA), and Snap One (being acquired by Resideo). Gold sold off, but in a choppy fashion, from $2371 – $2345.
While the ongoing geopolitical tensions have certainly a bullish factor, it has been only a contributing one. The $440 rally from the 2/14 $1984 low to last Friday’s $2432 high has been largely fueled by heavy Asian buying, with particular support from Chinese buyers in physical, ETFs, and futures, continued contributions from central banks along with significant options activity, all into a relative vacuum of resistance (virtually no central bank selling, producer hedging scant).
NY Time
This morning’s stronger than expected US Retail Sales Report:
- Retail Sales MoM stronger (0.7% vs exp 0.3%, 0.9% last, strong upward revision – rev up from 0.6%)
- Retail Sales Ex Autos MoM stronger (1.1% vs exp 0.4%, 0.6% last)
- Retail Sales Ex Gas / Autos stronger (1% vs exp 0.3%, 0.5% last)
- Retail Sales YoY better (4% vs 2.1% last)
- Retail Sales Control Group better (1.1% vs exp 0.4%, 0.3% last)
Overcame a miss on the NY State Manufacturing Index (-14.3 vs exp -9, -20.9 last). This combined with some generally hawkish commentary from the NY Fed’s John Williams:
- Consumer spending strong (in reaction to the stronger Retail Sales Report)
- Job growth has been solid
- Strong economy with good growth, sees 2% GDP this yr
- Strong productivity
- Recent hotter CPI not a turning point, expect to see inflation gradually coming down
- Inflation coming down slower than exp
- Mon policy working at rates we have now
- Real rates considerably higher because inflation has come down
- Base case is to cut rates this year, but not now, data dependent
Bond yields continued to move higher, with the US 2yr up to 4.991% (back near 5-mo highs), and the US 10yr to 4.666% (fresh 5-mo high). Equities sold off with the S&P breaching its 50-day MA and off 60 to 5063, a 5wk low. The DX strengthened further to 106.23, also a 5-mo high. Gold initially softened to $2324, where support there ($2320-26 (4/10, 4/11 lows, options) held. As we have seen countless times recently, strong dip buying quickly emerged to lift the yellow metal back through unch ($2344) and its ovn high ($2371) to reach $2377, where it was capped there ($2375-77, 4/11 high, options)
Technicals
Support:
$2320-26 (4/10, 4/11 lows, options), $2300-03 (4/8 low, options), $2266-67(4/3, 4/5 lows), $2247-50 (4/2 low, options), $2208 (50% retracement of up move from 2/14 $1984 low to 4/12 $2432 ATH), $2229 (4/1 low), $2187 (3/28 low), $2174-75 (3/27 low, options, $2157-68 (3/22, 3/25, 3/26 lows, $2146-50 (3/18, 3/19, 3/20 lows)
Resistance:
$2375-78 (4/11, 4/15 highs, options), $2400 (options), $2432 (4/12 ATH)
Remains 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 surged back up to an overbought 75 on the rally to the $2222. After another dip to $2157 on 3/22, the rally to Friday’s fresh all time high at $2365 took the 14-day RSI back to the white hot overbought level of 85. Despite Friday’s move to a blow off top at $2432 followed by a $100 pullback and today’s strong recovery, the market very overbought at 75.
Gold 4/15/24
by Jim Pogoda
Senior Trader / Analyst
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