Overnight Activity:
An easing of geopolitical tensions over the weekend reversed gains in haven assets last night. Teheran played down the reported Israeli attacks in Isfahan, while Israel never confirmed the attacks. The US House also finally passed the long debated $95B aid package for Ukraine, Israel, and Taiwan, without Speaker Johnson being ousted from his right flank. Though an attempt to can the Speaker may be forthcoming, some comments / reports are circulating that some House Democrats will act to thwart the action. The aid for Ukraine was seen as a stabilizing factor (helps prevent Russia from widening the conflict), and the aid for Taiwan seen as a deterrent against potential and anticipated Chinese aggression.
The yen softened (154.45 – 154.79), but its losses were limited by verbal intervention from Japan’s Fin Min Suzuki (fresh warning against excessive currency market moves). The dollar improved, with the DX advancing from 105.98 – 106.32. US bond yields advanced, with the US 2yr up from 4.969% – 5.008%, and the US 10yr from 4.616% – 4.672% – both back flirting with 5 month highs. Gold sold off sharply, with the striking feature being the lack of dip buying that has kept this market supported recently. Stops were hit under $2355-63 (4/16, 4/17, 4/18 lows), and $2350 (options), to take the yellow metal down to $2341 – a one week low. Equities advanced, with S&P futures rebounding after 6 consecutive down sessions (+32 to 5036). Gains were led by Verizon (earnings beat, affirmed full yr guidance), Alcoa (MS upgrade), and Crypto Stocks (on halving).
NY Time
The calendar of US of US Economic releases today was light, and coupled with the Fed being in a quiet period ahead of its May 1 meeting, markets were left without significant short term drivers. The Chicago Fed’s National Activity Index at 830 AM was better than expected (0.15 vs exp 0.09, 0.09 last). This, along with the Eurozone Consumer Confidence reading coming in soft (-14.7 vs exp -14, -14.9) helped bring the DX to 106.39. However, bond yields turned back down, with the US 2yr to 4.954%, and the US 10yr down to 4.61%. Equities were helped by the softening in yields, with the S&P firming 42 pts to 5009. It was a fairly broad based advance, with all 11 Sectors gaining, led by Financials, and IT. Gold continued to soften, and traded down to $2329, where support ahead of $2320-26 (4/10, 4/11 lows, options) held.
Technicals
Support:
$2320-29 (4/10, 4/11 lows, 4/22 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:
$2386 (4/22 high), $2393-2400 (4/16, 4/17, 4/18 highs, options), $2418-25 (4/19 high, options), $2432 (4/12 ATH)
Overbought Condition Finally Wanes:
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 market surged $275 to a fresh ATH at $2432 by putting in 13/14 sessions of new highs. This took the14-day RSI back to the white hot overbought level of 85. Despite the 4/12 blow off top price action (rally to ATH $2432 was followed by a $100 pullback), the market surged back to flirt with $2400 through last Friday, remaining overbought (72). Today’s sharp pullback knocked the RSI down to 58, a level it hasn’t seen since 2/29.
FedWatch:
Recent stronger US Economic Data, including the most recent robust US Payroll Report, hotter CPI, and stronger Retail Sales have combined with a generally more hawkish narrative from recent Fed Speakers, including Chair Powell on Wed, to push back on the rapid and deep rate cut narrative that was prevalent just a couple of months ago. The door is essentially shut on the Fed beginning to cut rates in June (prob down to under 20%), and July (45%), and now expect them to begin in Sep (67.3%). Additionally, markets also reduced their expectation of cuts from 3 to 2 for the remainder of the year.
FF Probabilities:
May: 3.7% prob of cut to 5% or below
June: 17% prob of cut to 5% or below
July: 41% chance of cut to 5% or below
Sep: 67.1% prob of cut to 5% or lower
Nov: 31.8% prob of cut to 4.75% or lower
Dec ’24: 51.4% prob of a cut to 4.75%, or lower, only 18.2% 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 4/16 showed the large funds cutting 1.0k contracts of longs and reducing 0.5k contracts of shorts to lowe the Net Fund Long Position by just 0.5k contracts to 201.9k contracts. This was done on gold’s advance rally from $2352 on 4/9 – $2383 on 4/16. At 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 $350+ since then, GLD holdings have only increased by around 15 tonnes to 825-32 tonnes (832 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:
Q1 Earnings Season – 40% of S&P announces this week
Fed quiet period ahead of 5/1 FOMC Meeting
Tues: Japan’s Jibun Bank Man PMI, German Man PMI, Eurozone Man PMI, UK Man PMI, US Building Permits, Redbook Sales, Man PMI, New Home Salse, Richmond Fed Index, 2 year note auction, API Oil Inventory
Wed: German IFO Business Climate, US Durable Goods, EIA Oil Inventories
Thurs: Japan’s Leading Index, Coincident Index, German GfK Consumer Confidence, US Q1GDP, Jobless Claims, Wholesale Inventories, Pending Home Sales, KC Fed Index
Fri: Japan’s BOJ Interest Rate Decision, US PCE, Personal Income, Personal Spending, University of Michigan Consumer Sentiment, COT
Gold 4/22/24
by Jim Pogoda
Senior Trader / Analyst
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