Overnight:
Gold was a bit choppy last night and either side of unch ($2314), trading between $2304 – $2321. It was pressured on the downside by an improving US dollar, as the DX advanced from 105.41 – 105.64. The greenback was helped by:
- Yen weakness (154.57 – 155.52, losing almost 1 full handle)
- Yen bears disregarded verbal intervention by the BOJ’s Ueda
- rapid, one-sided falls in the Japanese Yen are undesirable and negative for the Japanese economy
- Important for fx moves to reflect fundamentals
- If risk of weak yen affecting trend inflation significantly is high, we may need to respond with monetary policy
- We must be mindful that impact of weak yen on inflation may increase as corporate wage, price-setting behavior changes
However, gold was supported by a rate cut by the Sweeden’s Riksbank (25bp to 3.75%). They followed Switzerland, Hungary, and the Czech Republic in easing monetary policy for the first time since hiking cycles began in 2022. While these overseas rate cuts (while Fed stands pat) have stronger dollar implications, it was seen as more gold supportive (expansionary) last night.
Bond yields were a little firmer and weighed on gold, with the US 2yr from 4.828% – 4.845%, and the US 10yr from 4.459% – 4.49%. However, weakness in equities (S&P Futures off 25 to 5189) was gold supportive. Losses at Uber (booking revenue miss), EA (earnings miss, guided lower), Intel (guided lower), Rivian (larger than exp loss), and Match (guided lower) led the decline.
NY Time
The only significant US Economic Report today was Wholesale Inventories, which came in as expected: (-0.4% vs exp -0.4%, -0.2% last). In early price action, bond yields had a modest pullback (US 2yr to 4.826%, and the US 10yr to 4.472%). The lower yields encouraged a bounce in stocks, with the S&P climbing to 5192 (+5). The DX slipped to 105.43 ,and gold turned higher. However, the yellow metal ran into resistance at its overnight high at $2321.
Into the afternoon, markets digested a so-so $42B 10yr note auction, along with some mildly hawkish remarks from the Fed’s Collins:
- Demand will need to slow to get inflation to 2%
- Fed policy well positioned for current outlook
- Monetary policy is ‘moderately’ restrictive
- Highlighted potential risks to cutting rates too soon
- Doesn’t expect productivity jump to be persistent
- Recent inflation setbacks are not a surprise
- Optimistic Fed can get 2% inflation in reasonable time frame
- Economy robust, job market coming into better balance
Bond yields edged higher, with the US 2yr to 4.843%, and the US 10yr to 4.492%. Stocks turned negative (S&P to 5176, off 11), with losses in Real Estate, Consumer Discretionary, and Materials outweighing gains in Utilities and Financials. The dollar bounced to 105.57, and gold softened back to unch, $2314. Price action sure seems like the Summer Doldrums have already arrived…
Technicals
Support:
$2304-10 (5/7, 5/8 lows), $2300 (options), $2292 (5/6 low), $2278-86 (4/30, 5/1, 5/2, 5/3 lows), $2266-67(4/3, 4/5 lows, down trendline from 4/10 $2320 low), $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), $2382 – 89 (4/22 high, down trendline from 4/12 $2432 ATH), $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 (66% prob) and are back expecting a 2nd cut at the Dec meeting to reach a 4.75% Funds rate by year end.
FF Probabilities:
June: 8.7% prob of cut to 5% or below
July: 31.4% prob of cut to 5% or below
Sep: 65.7% chance of cut to 5%, or lower
Nov: 34.2% prob of cut to 4.75% or lower
Dec: 57.9% 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 (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 85% of S&P reporting, 78.2% reporting EPS > estimates, and 61% beating revenue estimates
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 5/08/24
by Jim Pogoda
Senior Trader / Analyst
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