HAA Gold Market Report 22 May 2024

Gold Market Report – May 22, 2024

Overnight:

After surging to a fresh ATH of $2450 last Sun eve, gold continued its pullback last night. It traded lower in a range of $2426 – $2406, and found support at its prior 2 session’s lows ($2406, $2408, 5/20, 5/21 lows).  While gold largely ignored steady / firmer US Dollar and bond yields on its rally higher to $2450 (another surge of Chinese spec interest fueling up move) gold was tugged lower as a chorus of hawkish FedSpeak yesterday (higher for longer, need to see several months of lower inflation readings to advocate for a FF cut) helped lift US bond yields (US 2yr from 4.833% – 4.873%, US 10yr from 4.415% – 4.461%) and the dollar (DX from 104.66 – 104.93)

  • Fed’s Waller
  • I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy
  • Fed’s Mester
  • Open to rate hike if warranted
  • Fed’s Collins
  • progress toward interest rate adjustment will take longer
  • Elevated uncertainty continues to be a feature of the economy
  • Fed’s Barr
  • Eco is quite strong, really low unemployment
  • A lot of progress on inflation: 7.1% PCE to 2.7%, but still need to finish job, down to 2%
  • need to sit tight, for longer than we thought
  • need to see more progress on infl before we can think about adj pol rate

This while the ECB’s Lagarde has been posturing dovish:

  • really confident” that euro zone inflation was under control as the impact of the energy crisis and supply-chain bottlenecks fade away

Equities were softer and gold supportive (but just off ATHs) however, with S&P futures off 10 to 5335.  Losses at Target (earnings miss) and Lululemon (restructuring) led the decline. 


NY Time

After the NY open, gold was hit with a wave of technical selling (mostly long liquidation) under ($2406 -08, overnight low, 5/20, 5/21 lows) and $2400 (options) that pushed the market down to $2382.  At 10AM, gold found support on the release of a weaker than expected reading on US Existing Home Sales (4.14M vs exp 4.21M, 4.22M last).  Equities turned up and into positive territory with the S&P reaching 5323 (+1).  Gains IT, Industrials, and Health Care were offset by losses in Energy, Materials, Utilities, and Consumer Discretionary.  A drop in crude (WTI off $1.19 to $77.47, surprise build in US Oil Inventories reported by the EIA, confirming the API report yesterday weighed) led the Energy Sector lower.  Bond yields pulled back, with the US 2yr to 4.854% and the US 10yr to 4.413%, and the DX retreated to 104.73.  Gold bottomed at $2382, and had a modest rebound to trade between $2390-95.

Focus turns to this afternoon’s FOMC minutes at 2pm followed by Nvidia’s earnings after the bell.


Technicals

Support:

$2382 (5/22 low) $2371-75 (5/16, 5/17 lows, options), $2350-56, (5/15 low, options, down trendline from 4/12 $2432 high, up trendline from 2/29 $2028 low), $2332-39 (5/13, 5/14 lows), $2325 options, $2300 (options), $2292 (5/6 low), $2278-86 (4/30, 5/1, 5/2, 5/3 lows), $2265-67(4/3, 4/5 lows), $2247-50 (4/2 low, options), $2225-29 (options, 4/1 low), $2217 (50% retracement of up move from 2/14 $1984 low to 5/20  $2450 ATH)

Resistance:

$2425 – 34 (5/22, 5/21 highs, options), $2450 (5/20 ATH, options) 

FedWatch:

The recent chorus of hawkish FedSpeak advocating for a higher funds rate for longer have pushed probabilities for FF rate cuts back down.  However, markets are still predicting two FF rate cuts this year.  They’re looking for the first cut to occur in Sep (61% prob) and the 2nd cut at the Dec meeting (though only a slim 52.3% chance) to reach a 4.75% Funds rate by year end.

FF Probabilities:

June: 3.8% prob of cut to 5% or below

July: 21.7% prob of a cut to 5% or below

Sep:  60.9% chance of cut to 5% or lower

Nov: 26.6% chance of cut to 4.75% or lower

Dec: 52.3% prob of cut to 4.75% or lower


Market Positioning

Last Friday’s CFTC’s COT Report as of 5/14 showed the large funds adding 5.5k contracts of longs and 0.6k contracts of shorts to increase the Net Fund Long Position by 4.9k contracts to 204.5k contracts.  This was done on gold’s advance from $2215 – $2355 during 5/7-5/14, showing a modest amount of new longs during the rally.  At 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 20 tonnes to 825-39 tonnes, with just 5 tonnes being added on the move to $2450 on 5/20 (839 tonnes last).  This continues to reflect a fair amount of profit taking from GLD longs into the rally, buying from other sources (Chinese) along with some diversification of AI assets into bitcoin ETFs (Bitcoin remains strong, 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 winding down… so far it has been decent: with around 93% of S&P reporting, roughly 78% reporting EPS > estimates…However, for Q2 guidance, 54 S&P companies have guided lower, with only 37 issuing positive guidance

Wed: FOMC minutes, Nvidia earnings

Thurs: Japan’s Jibun Bank PMI, German PMI, Eurozone PMI, UK PMI, US Building Permits, New Housing Px Index, Chi Fed National Activity Index, Jobless Claims, S&P PMI, Consumer Confidence, New Home Sales, KC Fed Index

Fri: Japan’s Inflation, German GDP, UK Retail Sales, Gfk Consumer Confidence, US Durable Goods, U. Michigan Consumer Sentiment, COT


Gold 5/22/24

by Jim Pogoda

Senior Trader / Analyst


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