Dollar Graph

Gold Market Report – May 02, 2024

Overnight: Range $2295 – $2326

After a pullback from its dovish Powell inspired high of $2328 to $2307, gold was lifted back to $2326 late yesterday afternoon by currency intervention by the BOJ.  The Bank intervened for the 2nd time this week (this one around around $23B), trying to add / pile on to yen strength as Powell’s surprise dovishness inspired a US dollar decline.  The yen strengthened over 4 handles from 157.59 – 153.03, driving the DX down to 105.44.

The yellow metal softened for the rest of the overnight session, however, as the dollar rebounded (DX to 105.81). The greenback was aided by:

  • Yen returning lower (156.29)
  • Markets testing the resolve of the BOJ, see current $/yen level as unsustainable given expected interest rate differentials
  • Drop in euro ($1.0728 – $1.0695)
  • Pullback after Powell’s dovishness inspired common currency rally through $1.07
  • Overcomes slightly better than exp German Manufacturing PMI (42.5 vs exp 42.2, 41.9 last), and a slightly better than exp but lower reading than last on Eurozone Manufacturing PMI (45.7 vs exp 45.6, 46.1 last)

US bond yields were mixed, with the US 2yr hovering either side of unch (4.939%), while the US 10yr was a tad higher and a slight headwind for gold, up from 4.592% – 4.62% (inversion narrows to 30bp).  Equities were higher and also weighed on gold with S&P futures up 38 to 5085.  The surprise Powell dovishness along with gains in Qualcomm (stronger earnings, guided higher) and Wayfair (revenue beat) lead the advance.


NY Time

Today’s US Economic Reports were on balance stronger:

  • Challenger Job Cuts lower (64.789k vs 90.309k last)
  • Balance of Trade slightly lower (-$69.4B vs exp -$69.1B, -$69.5B last)
  • Jobless Claims lower (208k vs exp 212k, 208k last)
  • 4wk average (210k vs 213.5 last)
  • Continuing Claims lower (1774k vs exp 1800k, 1774k last)
  • Unit Labor Costs QoQ much higher (4.7% vs exp 3.3%, 0% last)
  • Nonfarm Productivity QoQ lower (0.3% vs exp 0.8%, 3.5% last, rev up from 3.2%)
  • Factory Orders as exp (1.6% vs exp 1.6%, 1.2% last)
  • Ex Transportation lower (0.5% vs 1.1% last)

Stocks sold off on the stronger data (S&P off 8 to 5010) with concern over the continued strong labor market readings, and the much higher labor cost report.  Bond yields moved higher with the US 2yr to 4.952%, and the US 10yr to 4.652%.  The DX continued to firm, rising to 105.89.  Gold retreated in response, and sold off to $2286, but support ahead of $2282-85 (4/30, 5/1 low) held.

Into mid-day, stocks rebounded (S&P +27 to 5046), helped by bond yields turning back down (2yr to 4.90% – 1wk low, 10yr to 4.59%), with Powell’s dovish message from yesterday continuing to resonate.    Gains in IT and Consumer Discretionary led the advance.  The DX also turned lower, sliding to 105.48, finding support ahead of its triple bottom at 105.42-46 (4/26, 4/29, and 5/1 lows).  Gold rebounded back through $2300 to reach $2307, before pulling back slightly to trade either side of the key $2300 level.

All eyes on tomorrow’s US Payroll Report.


Technicals

Support:

$2282-86 (4/30, 5/1, 5/2 lows), $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:

$2325-28 (5/1, 5/2 highs, options,), $2337 (4/30 high, up trendline from 2/29 $2027 low), $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:

Powell’s surprise dovish tilt yesterday moved the probabilities of sooner and deeper FF rate cuts significantly.  Now, markets are predicting the first cut to occur in Sep, and are close (49.9% probability) to pricing in a second cut in the Funds rate to 4.75% by the December meeting. 

FF Probabilities:

June: 14.2% prob of cut to 5% or below, up from 9.5% yday

July: 35.4% prob of cut to 5% or below, up from 22.5%yday

Sep:  60.7% prob of cut to 5% or lower, up from 45.5% yday

Nov: 29.7% prob of cut to 4.75% or lower, up from 16.3% yday

Dec: 49.9% prob of cut to 4.75%, up from 32.2% yday


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 (831 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 remains strong,trading either side of  $60k). 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

Fri:  UK Services PMI, Eurozone Unemployment, US Payroll Report, Services PMI, ISM Services, COT


Gold 5/02/24

by Jim Pogoda

Senior Trader / Analyst


We hope you found this report informative and useful in understanding current market conditions. To check your holdings, activate auto-investment via MetalStream, or to start a new investment in physical gold or silver, log in to your account today.


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