Overnight Activity:
Gold continued to soften last night with a combination of reduced geopolitical risk and a continued correction of a wildly overbought condition weighing on the yellow metal. It declined in a range of $2334 – $2292, with sell stops hit under the support levels of $2320-29 (4/10, 4/11, 4/15, and 4/22 lows, options), $2300-03 (4/8 low, options). Gold softened despite a retreat in the US dollar, as the DX declined in choppy trading from 106.07 – 105.92. The DX was weighed by:
- Early yen strength (154.85 – 154.71), which stalled the haven selling seen from Sunday night forward:
- Stronger Jibun Bank Manufacturing PMI (49.9 vs exp 48, 48.2 last)
- Stronger Jibun Bank Services PMI (54.6 vs 54.1 last)
- Firmer pound ($1.2389 – $1.2456)
- Stronger UK Composite PMI (54 vs 52.8 last)
US bond yields were slightly firmer and a modest headwind for gold, with the US 2yr from 4.971% – 4.998%, and the US 10yr from 4.623% – 4.657%. A continued rebound in equities also weighed on gold with S&P futures +18 to 5066. Gains were led by GM (earnings beat, raised guidance), Novartis (earnings beat, raised guidance), SAP (earnings beat, stronger guidance), and Spotify (earnings beat).
However, gold did see some renewed dip buying (which was notably absent yesterday) that took the market back up to $2310 just ahead of the NY open.
NY Time
Today’s US Economic Data was a mixed bag, but on balance, leaned moderately to the softer side:
- Redbook Sales YoY higher (5.3% vs 4.9% last)
- S&P Manufacturing PMI lower (49.9 vs exp 52, 51.9 last, falls back below 50 indicating contraction)
- S&P Services PMI weaker (50.9 vs exp 52, 51.7 last)
- New Home Sales higher (0.693M vs exp 0.668M, 0.637M last
- Building Permits higher (1.467M vs exp 1.458M, 1.523M last)
- Richmond Fed Manufacturing Index as exp (-7 vs exp -7, -11 last)
- Richmond Fed Man Shipments Index better (-10 vs -14 last)
- Richmond Fed Services Index weaker (-13 vs -7 last)
Stocks advanced (focusing on mostly on weaker PMI data, brought poss initial rate cut in July back into the picture), with the S&P climbing to 5069 (+58). All S&P Sectors were higher with the exception of Materials, which was weighed by a 7% drop in Nucor (earnings miss, guided lower). Bond yields turned lower with the US 2yr down to 4.918%, and the US 10yr to 4.571%. The DX plunged below the key levels of 106 and 105.74 (last Thursday’s low) to reach 105.63. Gold continued to rebound, and surged back above former support at $2320-29 (4/10, 4/11, 4/15, and 4/22 lows, options) to reach $2332.
In the afternoon, a strong auction for a record $69B of US 2yr notes drove bond yields further down (US 2yr to 4.914%, US 10yr to 4.567%). Stocks cheered the lower rates, and surged further (S&P +65 to 5076). Stocks were also helped by a procedural vote in the US Senate to advance the $95B Foreign Aid Package +Tik Tok Divestiture (Ukraine, Israel and Taiwan aid, TikTok Divestiture that the House finally passed) that will lead to a final vote. The DX became choppy and traded either side of 105.75. Gold, which had retreated to $2315, rallied back to $2331, but was unable to take out its previous high at $2332.
Technicals
Support:
$2320-29 (4/10, 4/11 lows, 4/22 lows, options), $2300-03 (4/8 low, options), $2292 (4/23 low), $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:
$2389 (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). From 3/1-4/19, the 14-day RSI was only below 70 for a scant 6 sessions, underscoring the market’s relentless (but perhaps irrational?) strength. The sharp pullback seen over the past two sessions knocked the RSI down to 57, 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 last 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%), but today’s softer PMI data brought a rate cut in July (47.7%) back into play. Additionally, markets also reduced their expectation of cuts from 3 to 2 for the remainder of the year.
FF Probabilities:
May: 4.2% prob of cut to 5% or below
June: 16.8% prob of cut to 5% or below
July: 47.7% chance of cut to 5% or below, up from 41% yday
Sep: 72.9% prob of cut to 5% or lower, up from 6.71% yday
Nov: 38.3% prob of cut to 4.75% or lower, up from 31.8% yday
Dec ’24: 58.7% prob of a cut to 4.75%, or lower, only 23.5% 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 lower 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 announce this week
Fed quiet period ahead of 5/1 FOMC Meeting
Tues: 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 4/23/24
by Jim Pogoda
Senior Trader / Analyst
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