#Gold Report by MacroView Research 3.5.17
Last week’s gold report warned that price action was extended and a pullback is warranted; and a pullback is what gold traders got. Last week’s close was the first negative close in five, and it largely was on the back of surging 2-year yields as market participants aim to price in March rate hike.
The U.S. dollar surged earlier in the week but tapered off on mixed data and Fed speak.
It was confirmed that the U.S. only grew a meager 1.9 percent in 2016, and numerous banks, including BoAML and Goldman have all ratcheted down their Q1-17 GDP forecasts sub-two percent.
Interestingly enough, the Atlanta Fed’s GDPNow model is currently at 1.8 percent for the current quarter – just over a month ago, the figure was lingering just below 3.5 percent. That’s nearly a 50% reduction in four weeks.
Friday’s speech from Fed Chair Janet Yellen wasn’t too exciting. She said a rate hike in March would be “likely” given that the economic data warrants such. In our opinion, her speech was more dovish then expected with no clear commitment to significant monetary tightening. Traders may have sense a bit of dovishness because the dollar fell over .50 percent causing commodities to rebound.
Gold has broken through our S1 but has found some footing at $1,222 (S2). The near-term positioning is not as extended: it went from a 1D z-score of 1.76 to -.57, and 1W z-score of 1.03 to .56.
That’s net-bullish, but the overwhelming expectation of a looming rate hike will cause pricing pressure near-term. The nitty-gritty is that the U.S. economy is stagnating and the credit cycle is maturing. The Fed is worried about a stronger dollar, so they’re going to still tighten 3-4 times this year? Unlikely.
We remain bullish with the view that a March rate hike will end up with more strength in gold. As seen in December 2015 and 2016, rates climbed higher into the expectations of a hike, essentially pricing it in, then the yield curve began to flatten. Due to current inflation levels, a flattening curve will then drive real yields lower and gold will likely retest $1,250.
Key S/R Levels
S1: $1,222
S2: $1,200
R1: $1,249
R2: $1,281
The U.S. dollar surged earlier in the week but tapered off on mixed data and Fed speak.
It was confirmed that the U.S. only grew a meager 1.9 percent in 2016, and numerous banks, including BoAML and Goldman have all ratcheted down their Q1-17 GDP forecasts sub-two percent.
Interestingly enough, the Atlanta Fed’s GDPNow model is currently at 1.8 percent for the current quarter – just over a month ago, the figure was lingering just below 3.5 percent. That’s nearly a 50% reduction in four weeks.
Friday’s speech from Fed Chair Janet Yellen wasn’t too exciting. She said a rate hike in March would be “likely” given that the economic data warrants such. In our opinion, her speech was more dovish then expected with no clear commitment to significant monetary tightening. Traders may have sense a bit of dovishness because the dollar fell over .50 percent causing commodities to rebound.
Gold has broken through our S1 but has found some footing at $1,222 (S2). The near-term positioning is not as extended: it went from a 1D z-score of 1.76 to -.57, and 1W z-score of 1.03 to .56.
That’s net-bullish, but the overwhelming expectation of a looming rate hike will cause pricing pressure near-term. The nitty-gritty is that the U.S. economy is stagnating and the credit cycle is maturing. The Fed is worried about a stronger dollar, so they’re going to still tighten 3-4 times this year? Unlikely.
We remain bullish with the view that a March rate hike will end up with more strength in gold. As seen in December 2015 and 2016, rates climbed higher into the expectations of a hike, essentially pricing it in, then the yield curve began to flatten. Due to current inflation levels, a flattening curve will then drive real yields lower and gold will likely retest $1,250.
Key S/R Levels
S1: $1,222
S2: $1,200
R1: $1,249
R2: $1,281
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