Overnight Activity:
Gold stayed choppy last night, trading either side of unch ($2338) in a range of $2320 – $2344. It sold off to its $2320 low during early Asian time, fading strength in the US dollar (DX from 105.92- 106.08). The dollar was lifted by an initial spike down in the yen (160.20) to a fresh 34-year low at 160.20. This was done in thin trading as Japan was off on Holiday (Showa Day) – with markets seeing US / Japan rate differentials remaining wider for longer – and not coming in as previously expected (BOJ reluctant to hike, hotter US inflation data keeping the Fed from cutting)
Gold rebounded to its $2344 high during later Asian and early European hours, but it was unable to take out resistance at $2345-52 (4/25, 4/26 highs, options). The move was fueled by highly suspected (but not confirmed) currency intervention in the yen by BOJ which drove the yen over 5 handles higher (154.52), and forced the DX down to 105.46.
Later during European time, gold pulled back to $2334, as the DX bounced (in choppy trade) to 105.83. The DX was helped by:
- dip in the euro ($1.0734 – $1.0697), which was tugged down by a lower than expected reading on German Inflation:
- YoY lower (2.2% vs exp 2.3%, 2.2% last)
- MoM lower (0.5% vs exp 0.6%, 0.4% last)
- Which overcame some hawkish commentary from the ECB’s Wunsch (cutting rates again in July is not a done deal)
- A post intervention dip in the yen (156.46), as currency traders are reluctant to step away from the scenario that the US-Japan interest rate differential won’t result in yen softening
US bond yields were lower and gold supportive, with the US 2yr from 5% to 4.97%, and the US 10yr from 4.67% – 4.614%. However, equities were a bit firmer and a modest headwind for gold with S&P futures +14 to 5145. Stocks were helped by Tesla (cleared hurdle for full self driving in China), Domino’s (earnings beat), Apple (upgraded by Bernstein), and SoFi (earnings beat).
Rumors of progress on a potential hostage for ceasefire deal between Israel and Hamas weighed on gold’s safe haven premium, as it did also with oil (WTI off $0.87 to $82.98).
NY Time
Markets were left rudderless today, with the only US Economic release being the slightly lower reading on the Dallas Fed Manufacturing Index (-14.5 vs -14.4 last), and with Fed still in a quiet period ahead of Wednesday’s FOMC meeting announcement and Powell presser. Equities held on to overnight gains with the S&P between 5105 – 5122 (5113 last, +13). Gains in Consumer Discretionary, Utilities, and Real Estate led the advance. Bond yields, after a modest bounce just after the NY open, turned back down and helped fuel the rate sensitive equity sectors (2yr from 4.989% – 4.971%, US 10yr from 4.635% – 4.611%). The DX, which firmed along with bond yields after the open, slipped back down to 105.47 where it found support ahead of its overnight low (105.46). Gold, fading yields and the dollar dipped to $2326 after the open, but then rallied back to $2346 where resistance there ($2345-52, 4/25, 4/26 highs, overnight high, options) held again.
Technicals
Support:
$2320-26 (4/26, 4/29 lows, options, up trendline from 2/29 $2027 low), $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:
$2345-52 (4/25, 4/26, 4/29 highs, 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)
FedWatch:
Friday’s warmer inflation readings (PCE and U. Mich) added to the hotter GDP inflation readings last Thursday. These combined with the recent on balance stronger US Economic Data (robust US Payroll Report, hotter CPI, and stronger Retail Sales) along with the 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 (12%) and considerably lower now in July (30%). Moreover, markets also reduced their expectation of cuts from 2 to just one for the remainder of the year.
FF Probabilities:
May: 2.7% prob of cut to 5% or below
June: 11.5% of cut to 5% or below
July: 29.9%chance of cut to 5% or below
Sep: 57.8% prob of cut to 5% or lower
Nov: 24.6% prob of cut to 4.75% or lower
Dec ’24: 43.1% prob of a cut to 4.75%, or lower
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 4/23 showed the large funds adding 0.8k contracts of longs and reducing 0.2k contracts of shorts to increase the Net Fund Long Position by 1k contracts to 203k contracts. This was done on gold’s pullback from $2383 – $2321 during 4/16 – 4/23. Surprisingly, this position wasn’t reduced further by liquidating longs given the sizeable market decline – leaving the market vulnerable on the downside. Still over 200k contracts, this position remains 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 (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 continues
Fed quiet period ahead of 5/1 FOMC Meeting
Mon: US Treasury Refunding Financing Estimates
Tues: Japan’s Housing Starts, Construction Orders, German Retail Sales, Unemployment Change, GDP, Eurozone Inflation, GDP, US ECI, Redbook Sales, House Price Index, Case-Shiller HPI, Chicago PMI, Consumer Confidence, Dallas Fed Index API Oil Inv
Wed: Japan’s Jibun Bank Man PMI, UK Man PMI, US ADP Employment, Treasury Refunding Announcement, Man PMI, ISM Manufacturing, Construction Spending, JOLTS Job Openings, EIA Oil Inv, FOMC Rate Decision, Powell Presser
Thurs: Japan’s BOJ Mon Pol Minutes, German Man PMI, Eurozone Man PMI, US Challenger Job Cuts, Bal of Trade, Jobless Claims, Nonfarm Productivity, Unit Labor Costs, Factory Orders, Vehicle Sales
Fri: UK Services PMI, Eurozone Unemployment, US Payroll Report, Services PMI, ISM Services, COT
Gold 4/29/24
by Jim Pogoda
Senior Trader / Analyst
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