Overnight Activity:
Gold sold off overnight, declining in a range of $2336 – $2308. It broke through support at $2320-26 (4/26, 4/29 lows, options, up trendline from 2/29 $2027 low), triggering further selling until it found support between $2305-12 (4/24 ,4/25 lows). The yellow metal traded against a firmer US dollar, as the DX rose from 105.63 – 105.96. The dollar was lifted by:
- Yen weakness (156.07 – 157.13)
- Miss on Japan’s Housing Starts (-12.8% vs exp -7.6%, -8.2% last)
- Higher Japanese Unemployment (2.6% vs exp 2.5%, 2.6% last)
- Weaker Industrial Production (-6.7% vs exp -6.6%, -3.9% last)
- Lower Retail Sales (1.2% vs exp 2.5%, 4.7% last)
- Continued softening, fighting the BOJ’s attempt to prop it up yesterday after it crossed the 160 level, a fresh 34 year low
- Japan’s low rates and reluctance to hike aggressively vs US rates that don’t seem to be coming down any time soon causing currency traders to take the yen lower
Despite the DX retreating to 105.71 during European time as stronger Eurozone Economic data lifted the common currency ($1.0689 – $1.0736),
- German Retail Sales MoM stronger (1.8% vs exp 1.3%, -1.5% last)
- German GDP QoQ slightly better (0.2% vs exp 0.1%, -0.5% last)
- Eurozone Core Inflation YoY tad higher (2.7% vs exp 2.6%, 2.9% last)
- Eurozone GDP QoQ better (0.3% vs exp 0.1%, 0% last)
Gold managed only a brief tick higher ($2313 – $2318) before making a fresh low at $2308 ahead of the NY open. Further chatter about an impending hostage for ceasefire deal between Israel and Hamas along with profit taking from longs at month end and ahead of the Fed tomorrow also weighed on gold.
Slightly firmer bond yields were also a headwind for gold with the US 2yr from 4.973% – 4.985%, and the US 10yr from 4.613% – 4.639%. A modest decline in equities (S&P futures off 11 to 5136) was gold supportive, however. Losses at McDonald’s (earnings miss), Stellantis (revenue miss), and GE Healthcare (earnings miss) weighed on stocks.
NY Time
Today’s early US Economic Data was largely stronger:
- Employment Cost Index QoQ higher (1.2% vs exp 1%, 0.9% last)
- Redbook Sales YoY higher (5.5% vs 5.3% last)
- House Price Index much higher (1.2% vs exp 0.1%, -0.1% last)
- Case-Shiller HPI higher (7.3% vs exp 6.7%, 6.6% last)
S&P futures softened further (hotter ECI not helping the Fed ease) off to 5122. Bond yields shot higher, with the US 2yr to 5.025%, and the US 10yr popped to 4.678%, both within spitting distance of fresh 5-month highs. The DX rallied to 106.06, and gold softened further to reach $2303, where support there ($2300-03, 4/8 low, options) held.
The later morning Economic Data was soft, however:
- Chicago PMI lower (37.9 vs exp 45, 41.4 last)
- Consumer Confidence much lower (97 vs exp 104, 103.1 last)
- Dallas Fed Services Index lower (-10.6 vs -5.5 last)
- Dallas Fed Services Revenues Index lower (0.3 vs 4.0)
After a brief bump higher, equities turned down with the S&P off 52 to 5063. The selloff was broad based, with only Health Care managing a small advance, and losses led by Consumer Discretionary, Materials, IT and Energy. A drop in crude (WTI off $1.66 to $80.97, US pushing for Israel / Hamas ceasefire, weaker US data, weaker Chinese Man PMI softened demand picture) weighed on the Energy sector. Bond yields remained fairly firm, however, with the US 2yr hovering between 5.008% – 5.021%, and the US 10yr from 4.655% – 4.676%. The DX surged to 106.23, helped by the yen softening further to 157.72, a post BOJ intervention low. Gold sold off further, breaching support at $2300-03 (4/8 low, options) to reach $2292 where support there (4/23 low) held.
Technicals
Support:
$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:
$2300 (options), $2325 (options, up trendline from 2/29 $2027 low), $2336 (4/30 high), $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:
Today’s hotter ECI added to Friday’s warmer inflation readings (PCE and U. Mich) and 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 (10%) and considerably lower now in July (25%). Moreover, markets also reduced their expectation of cuts from 2 to just one for the remainder of the year.
FF Probabilities:
May: 0.5% prob of cut to 5% or below
June: 9.9% of cut to 5% or below
July: 24.8%chance of cut to 5% or below
Sep: 48.8% prob of cut to 5% or lower
Nov: 17.5% prob of cut to 4.75% or lower
Dec ’24: 34.1% 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 in quiet period ahead of tomorrow’s FOMC Meeting
Tues: 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 4/30/24
by Jim Pogoda
Senior Trader / Analyst
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