Overnight:
Gold was steady overnight, trading narrowly and either side of unchanged ($2304) between $2297 – $2309, awaiting the US Payroll Report. A lack of significant overseas economic reports, and with the Bank of Japan holding its fire last night, currency markets / US dollar provided little direction for gold (DX stable but with a downward bias, range of 105.12 – 105.37). Bond yields also lacked volatility last night with the US 2yr either side of unch (4.877%) between 4.87% – 4.891%, and the US 10yr also either side of unch (4.568%) between 4.555% – 4.595%. Equities were firmer and a modest headwind for gold, with S&P futures up 21 to 5112. Stocks were lifted from gains in Apple (earnings and revenue beats, repurchasing $110B in stock), Amgen (revs and earnings beat, moving to phase 3 trial of obesity drug), and Hershey (earnings beat).
NY Time
The much awaited US Payroll Report was milder than expected, showing a “Goldilocks” scenario with not as hot job growth, and a reduction in wage increases to help extinguish inflationary flames:
- Non Farm Payrolls much lighter (175k vs exp 243k, 315k last, rev up from 303k, but Feb was revised down from 270k to 236k )
- Unemployment Rate ticked higher (3.9% vs exp 3.8%, 3.8% last, highest since Jan ‘22)
- Average Hourly Earnings MoM lower (0.2% vs exp 0.3%, 0.3% last)
- Average Hourly Earnings YoY lower (3.9% vs exp 4%, 4.1% last)
- Labor Force Participation Rate as exp (62.7% vs exp 62.7%, 62.7% last)
- Leading Sectors:
- Health Care +56k
- Social Assistance +31k
- Transportation and Warehousing +22k
- Retail +20k
Stocks soared on the “just right” reading, with S&P futures climbing to 5156, up 65. Bond yields plunged, with the US 2yr to down to 4.768% and the US 10yr down to 4.446% – both 3wk lows. The DX likewise sank. It tumbled below 105.08 (up trendline from 3/8 102.36 low) and 105, tripping additional technical selling on the way to 104.52 (3wk low) where it found support in the area of its 50day MA of 104.55. Gold spiked higher, and rose back above $2300 and took out its overnight high of $2309 to reach $2321, where resistance ahead of $2325-28 (5/1, 5/2 highs, options) held.
However, gold’s strength proved short-lived as the market quickly retreated to $2278 (1mo low) within the hour. Factors included:
- Failure to challenge / take out resistance at $2325-28 (5/1, 5/2 highs, options) despite significant down moves in bond yields and the DX
- Stops below the key $2300
- Hawkish commentary from the Fed’s Bowman:
- I still see a number of upside inflation risks that affect my outlook
- While the current stance of monetary policy appears to be at a restrictive level, I remain willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed
- expects inflation to remain elevated for some time
- lack of further supply-side improvements such as last year’s healing of supply chains, lower energy prices and increased immigration, all of which helped put downward pressure on inflation
- risks from spillovers from conflicts abroad as well as a recent loosening in financial conditions
- continued trend lower since making ATH on 4/12 at $2431
- exiting of spec longs?
- Rumors of progress on Israel / Hamas ceasefire deal
The later morning US Economic Data was a mixed bag:
- S&P Services PMI better (51.3 vs exp 50.9, 51.7 last)
- S&P Composite PMI better (51.3 vs exp 50.9, 52.1 last)
- ISM Services much weaker and now in contraction (49.4 vs exp 52, 51.4 last)
- Business Activity much weaker (50.9 vs 57.4 last)
- Employment much weaker (45.9 vs exp 49.0, 48.5 last)
- Prices much higher (59.2 vs exp 55.0, 53.4 last)
- New Orders lower (52.2 vs exp 54.5, 54.4 last)
Stocks pared gains, with a focus / worry on the higher Prices component of the ISM, with the S&P dipping to 5101, up 37. All S&P Sectors were higher except Energy, with IT leading gainers. Bond yields moved higher, with the US 2yr to 4.826% and the US 10yr to 4.54%. The DX bounced gamely to retake trendline support at 105.05 and reach 105.16. Gold had an initial spike back to $2302, before it was tugged back to the $2284-85 level (again feeling heavy).
Into the afternoon, stocks edged back up near their earlier highs (S&P +65 to 5130), helped by bond yields edging back down (US 2yr to 4.799%, US 10yr to 4.50%). The DX slipped back to trade between 104.90– 105.10, and helped gold claw back to trade either side of $2300.
Technicals
Support:
$2278-86 (4/30, 5/1, 5/2, 5/3 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:
$2320-28 (5/1, 5/2, 5/3 highs, options,), $2337 (4/30 high,), $2345-52 (4/25, 4/26, 4/29 highs, options, up trendline from 2/29 $2027 low), $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 mild Payroll Report combined with Powell’s surprise dovish tilt Wednesday moved the probabilities of sooner and deeper FF rate cuts significantly, and today’s Now, markets are predicting the first cut to occur in Sep, and are back expecting a 2nd cut at the Dec meeting to reach a 4.75% Funds rate by year end.
FF Probabilities:
June: 8.4% prob of cut to 5% or below
July: 35.9% prob of cut to 5% or below
Sep: 68% chance of cut to 5%, up from 60.7% yday
Nov: 38% prob of cut to 4.75% or lower, up from 29.7% prob yday
Dec: 60.9% prob of cut to 4.75%, up from 49.9% prob 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 (830 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, so far it has been decent: with around 80% of S&P reporting, 77% reporting EPS > estimates
Mon: China’s Caixin PMI, German Services PMI, Eurozone Services PMI, US Loan Officer Survey
Tues: Japan’s Jibun Bank Services PMI, German Bal of Trade, Construction PMI, Eurozone Construction PMI, China’s Forex Reserves, including Gold, UK Construction PMI, US Redbook Sales, RCM/TIPP Economic Optimism Index, Consumer Credit, API Oil Inventory
Wed: US Wholesale Inv, EIA Oil Inventory, 10year note auction
Thurs: Japan’s BOJ Summary of Opinions, Leading Economic Index, Coincident Index, China’s Bal of Trade, BOE Interest Rate Decision, US Jobless Claims
Fri: Japan’s Household Spending, Eco Watchers Survey, China’s Vehicle Sales, Current Account, UK GDP, Bal of Trade, Construction Output, Industrial Production, Eurozone ECB Monetary Pol Meeting Accounts, US University of Michigan Consumer Sentiment, COT
Gold 5/03/24
by Jim Pogoda
Senior Trader / Analyst
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