May 7, 2024

Gold Market Report – May 07, 2024

Overnight:

Gold traded lower last night, declining in a range of $2330 – $2310. It faded strength in the US dollar as the DX improved from 105.03 – 105.31. The greenback was helped by:

Hawkish FedSpeak from yesterday underscoring Fed is in no rush to cut rates still resonating and driving the rate differentials between US / Japan
Fed’s Barkin
Inflation data this year has been disappointing
Strength of job market will give Fed time to gain confidence that inflation will fall
Fed’s Williams
For now, monetary policy is in a good place
Softer yen (153.87 – 154.65)
Miss on Japan’s Jibun Bank Services PMI (54.3 vs exp 54.6, 54.1 last)
Dip in euro ($1.0775 – $1.0755)
Weaker German Factory Orders (-0.4% vs exp 0.5%, -0.8% last)
Miss on German Construction PMI (37.5 vs 38.3 last)
Miss on Eurozone Construction PMI (41.9 vs exp 42.4)

Though the US 2yr yield was either side of unch (4.822%), the US 10yr yield was a bit lower and gold supportive, moving down from 4.487% – 4.452%. Equities were a tad firmer and a modest headwind for gold, however, with S&P futures up 7 to 5213. Gains at Gap (upgraded by Citi), Target (Citi and UBS upgrade), Hims and Hers Health (earnings beat) outweighed losses at Disney (revenue miss ), and Palantir (weaker guidance).

An escalation in the Israel-Hamas conflict continued to be gold supportive:

Israel issued evacuation orders for eastern Rafah
Hamas agreed to cease fire deal proposed by Egypt and Qatar, but this was rejected by Israel
Israel seized the Palestinian side of the Rafah crossing
Egypt condemned as a “dangerous escalation”

The PBOC Increased its gold holdings in April:

Added 2 tonnes of gold
18^th straight month of additions – continues to resonate with bulls
However, pace has slowed dramatically
April’s addition of 2 tonnes less than half last month’s 5 tonnes
The last 4 months of additions were equal to their addition in Aug’23 alone (29 tonnes)

NY Time

The only US Economic report of consequence this morning was the RCM/TIPP Economic Optimism reading, which was worse than expected:

41.8 vs exp 44.1, 43.2 last

Bond yields softened, with the US 2y down to 4.803%, and the US 10yr down to 4.417%. Equities advanced further, with the S&P climbing to 5197, up 16. Gains in Materials, Real Estate, and Consumer Staples paced the rally. The DX softened, but found support at 105.04, just ahead of the overnight low of 105.03. Gold rallied in response, but topped out at $2324, where resistance there ($2325-32, 5/1, 5/2, 5/6 highs, options) held.

Later in the morning, markets absorbed some moderately hawkish commentary / concern from the Fed’s Kashkari:

We would hike rates if needed
Hiking rates is not the most likely outcome, but cannot rule it out
The jobs report was softer than expected but still not soft
New rent rates seemed to have ticked up. That is a little concerning to him.
We would need to see multiple reports on inflation to be comfortable on cutting rates
In March he marked down 2 rate cuts.
It is possible he could remain there or go to one or none.
The Fed will achieve its 2% target. 3% is not good enough. The Fed is committed to it to 2% target.
The economy is in a good place.
It seems like we will go sideways for a while.
We may need to be more patient.
Much more likely than raising rates is to keep rates where they are for longer than public expects
It’s not as if monetary policy is not having an effect, but just not as much of an effect as quickly as would have expected.

Bond yields reversed and moved higher, with the US 2yr to 4.826%, and the US 10yr to 4.452%. Stocks pared gains, with the S&P +2 to 5182. The DX rallied to 105.42, and gold retreated to $2311, finding support ahead of its overnight low ($2310). Some dip buying emerged that lifted the market to the $2313-17 level into the afternoon.

Technicals

Support:

$2310 (5/7 low), $2300 (options), $2292 (5/6 low), $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:

($2325-32, 5/1, 5/2, 5/6 highs, options) $2337 (4/30 high,), $2345-52 (4/25, 4/26, 4/29 highs, options), $2366 (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:

Last Friday’s mild Payroll Report combined with Powell’s surprise dovish tilt Wednesday moved the probabilities of sooner and deeper FF rate cuts significantly. Now, markets are predicting the first cut to occur in Sep, and are back expecting a 2^nd cut at the Dec meeting to reach a 4.75% Funds rate by year end.

FF Probabilities:

June: 8.7% prob of cut to 5% or below

July: 31.4% prob of cut to 5% or below

Sep: 65% chance of cut to 5%, or lower

Nov: 34.2% prob of cut to 4.75% or lower

Dec: 57.3% prob of cut to 4.75% or lower

Market Positioning

Last Friday’s CFTC’s COT Report as of 4/30 showed the large funds trimming 0.7k contracts of longs and cutting 2.0k contracts of shorts to increase the Net Fund Long Position by 1.3k contracts to 204.3k contracts. This was done on gold’s decline from $2322 – $2285 during 4/23 – 4/30. Surprisingly, for the second week in a row, this position wasn’t reduced further by liquidating longs given the sizeable market decline – leaving the market a bit long and 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 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 85% of S&P reporting, 78.2% reporting EPS > estimates, and 61% beating revenue estimates

Tues: US 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

In Case You Missed It

Biden economic advisor Jared Bernstein turns into bumbling mess after he’s asked why the government borrows money if they can just keep printing it.

Bernstein: Well, so the, I mean again, some of this stuff gets some of the language that the mmm, some of the language and concepts are just confusing…