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Gold prices end lower as US Treasury yields rise

Client sentiment pushes further into heavy buy territory opposite tested short-term technicals.

Source: Bloomberg

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FOMC meeting insights and market response

There were a couple of items to digest out of the US Federal Reserve (Fed) yesterday and including minutes from the latest FOMC (Federal Open Market Committee) meeting.

It showed a split between "some" wanting more rate increases vs. "several" that it may not be necessary on expectations of a slowdown in growth, even if the decision to raise rates to 5-5.25% was a unanimous one amongst them.

There was also the “need to retain optionality after this meeting”, meaning data-dependent which in the current environment is mostly fixated on pricing. In central bank speak, the Fed’s Waller kept the narrative “hike or skip” (as opposed to previous market pricing of ‘pause and then cut’).

Market anticipations and US Treasury yield trend

Market pricing (Refinitiv) via majority is now in favour of a 25bp (basis point) rate hike out of the Fed but not in their upcoming June meeting but rather in July, and roughly a coin toss on whether it'll get beneath 5% in their final meeting of this year in December.

As for Treasury yields, they finished the session higher and so too in real terms, breakeven inflation rates falling back a bit (though the 5y 5y forward inflation expectation rising to highs unseen since late last year).

State of US economic data and debt ceiling negotiations

US economic data showed the weekly mortgage applications suffer a -4.6% reading (mortgage rates back above 7% according to Mortgage News Daily), and on the debt ceiling front, there’s been no agreement yet, instead a Rating Watch Negative from Fitch.

Investors and traders are anxiously awaiting updates on that front. But otherwise, we’ve got preliminary GDP (Gross Domestic Product), the weekly claims and Fed speak today before PCE (Personal Consumption Expenditures) pricing data tomorrow.

Gold technical analysis overview

Gold Technical analysis, overview, strategies, and levels. Similar offerings yesterday for both conformist sell-breakout and contrarian buy-after-reversal strategies off its previous 1st Support level, with prices hovering beneath it as of writing this morning.

Overall, the relative uptick in volatility has failed to live up to technical considerations at these price levels and in turn its volatile technical overview has struggled a bit. There’s no denying the short-term negative technical bias that’s been running contrary to a few longer-term positive indicators, but even on the weekly time frame, the overview is volatile.

Source: IG

IG client* and CoT** sentiment for gold

As for sentiment, the pullback in price has taken retail trader long bias further into heavy buy territory, from 65% yesterday to 71% as of this morning, though still beneath the near-extreme long bias held by larger speculators according to last Friday’s CoT** report.

Retail trader sentiment in silver is higher at 83% and in extreme buy territory, retail bias in platinum even higher at 88%, and highest in palladium at 92%.

Source: IG

Gold chart with retail and institutional sentiment

Source: IG

*The percentage of IG client accounts with positions in this market that are currently long or short. Calculated to the nearest 1%, as of today morning 8am for the outer circle. Inner circle is from the previous trading day.
**CoT sentiment taken from the CFTC’s Commitment of Traders report, outer circle is latest report released on Friday with the positions as of last Tuesday, inner circle from the report prior.

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