Overnight Activity:
Gold remained nervous and volatile last night, but moved higher while trading in a range of $2305 – $2331. The yellow metal moved down to its $2305 low during Asian time, against an uptick in the US dollar (DX from 105.77 – 105.84). The DX was buoyed by:
- weakness in the yen (155.20 – 155.75, fresh 34 year high)
- Miss on Japan’s Coincident Index (111.6 vs 112.3 last) helps take yen past 155.50
- market participants don’t expect tom’s BOJ meeting to be hawkish enough to support yen at current levels
Gold rebounded during European hours, as the DX retreated. It took out support at the prior 2 sessions lows (105.59, 105.61) to reach 105.57, a two week low. The DX was weighed by:
- modest yen bounce (155.50), traders fearing BOJ intervention
- euro strength ($1.0694 – $1.0730)
- hawkish commentary from:
- ECB’s Economic Bulletin
- ECB’s Schnable (biggest concern is clearly services inflation)
- Slightly better reading on German GfK Consumer Confidence (-24.2 vs exp -25.9, -27.3 last)
US bond yields were just a tad lower and slightly gold positive with the US 2yr from 4.937% – 4.927%, and the US 10yr from 4.652% – 4.64%. Equities were also gold supportive with S&P futures off 37 to 5071. Stocks were weighed by a trouncing of Meta (off 12%, while earnings were solid, they planned to significantly increase investment in AI, and guided lower on revenue).
NY Time
A slew of somewhat mixed US Economic Data provided a rather toxic cocktail and roiled markets:
- Q1GDP MUCH weaker (1.6% vs exp 2.5%, 3.4% last)
- GDP Px Index slightly hotter (3.1% vs exp 3%, 1.7% last)
- GDP Sales weaker (2% vs 3.9% last)
- GDP Real Consumer Spending softer (2.5% vs exp 2.8%, 3.3% last)
- PCE Px Index QoQ much hotter (3.4% vs 1.8% last)
- Core PCE Px Index QoQ hotter (3.7% vs exp 3.4%, 2% last)
- Jobless Claims lower (207k vs exp 214k, 212k last)
- Continuing Claims lower (1781k vs exp 1814k last, 1796k last)
- Wholesale Inventories lower (-0.4% vs exp 0.2%, 0.4% last)
- Pending Home Sales much higher (3.4% vs exp 0.3%, 1.6% last)
- KC Fed Composite Index lower (-8 vs exp -5, -7 last)
Markets focused on the much weaker growth along with higher inflation readings and some analysts were quick to fear and spit out the S-word – stagflation. FF futures repriced the expectation of Fed rate cuts down to one from two. Stocks sold off, with the S&P plunging shortly after the open to 5026 (off 45). Communication Services was pummeled (off 4%), weighed by Meta’s 12% decline. Though an afternoon rally ensued, the S&P remained off 20. Bond yields shot higher, with the US 2yr up to 5.018%, and the US 10yr up to 4.745%, both making fresh 5 month highs. The DX became choppy, first rallying to 106 before plunging back to 105.53 and then becoming steady either side of 105.60. Gold was likewise volatile and largely faded DX movements as it initially plunged to $2313 before rallying rapidly up to $2345 and then retreated to trade either side of $2330.
Technicals
Support:
$2305-12 (4/24 ,4/25 lows), $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:
$2334-47 (4/23, 4/24, 4/25 highs), $2350 (options), $2375 (options), $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 previous three sessions knocked the RSI down to 56, a level it hasn’t seen since 2/29.
FedWatch:
Today’s hotter GDP inflation readings added to the recent stronger US Economic Data, including the most recent robust US Payroll Report, hotter CPI, and stronger Retail Sales, and combined with a generally more hawkish narrative from recent Fed Speakers, including Chair Powell 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 (under 10%) and considerably lower now in July (32%). Moreover, markets also reduced their expectation of cuts from 2 to just one for the remainder of the year.
FF Probabilities:
May: 3.9% prob of cut to 5% or below
June: 9.5% of cut to 5% or below, down from 16.9% yday
July: 32%chance of cut to 5% or below, down from 44.4% yday
Sep: 59.1% prob of cut to 5% or lower, down from 69.5% yday
Nov: 24.4% prob of cut to 4.75% or lower, down from 35.3%
Dec ’24: 41.4% prob of a cut to 4.75%, or lower, down from 53.8% yday
Now, markets are only pricing in one 25bp rate cut during this year to 5%.
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 825-33 tonnes (833 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
Fri: Japan’s BOJ Interest Rate Decision, US PCE, Personal Income, Personal Spending, University of Michigan Consumer Sentiment, COT
Gold 4/25/24
by Jim Pogoda
Senior Trader / Analyst
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