GOLD: 20-day EMA and USD Pullback Lends Gold Support; Technical Outlook Bullish
Gold has fallen 1.4% to ~$3,300/oz, but a move away from highs for the broader USD index and support from the 20-day EMA has contained downside intraday. Technically, the recovery from the May 15 low has signalled an end to the corrective phase that started on April 22. Medium-term trend signals are unchanged and remain bullish, with initial resistance at $3365.9 (May 23 high). This level shields the May 7 high at $3435.6.
- Even though peak US effective tariff rates appear to be in the rear-view, US President Trump’s U-turn on 50% EU tariffs last weekend indicates that trade policy uncertainty remains acute. Taken alongside ongoing US fiscal concerns, the case for gold in portfolios and as central bank reserves remains strong.
- Following the aformentioned corrective phase between Apr 22- May 15, the positioning backdrop is also cleaner for those looking to re-enter gold longs.
- TD Securities note that “CTAs will buy gold in any scenario over the coming week. We expect that systematic trend followers will grow their position size by a third by this time next week (or +10% of max size), benefiting from vol-control and rising signal strength. This will mark the first notable buying impulse in gold futures following large scale liquidations associated with macro fund divestment in the weeks surrounding Liberation day”.
- Looking at the sources of gold demand, TD write that “only retail ETF holders are vulnerable, both in the West and the East. A shift in strategic asset allocations has contributed a significant portion of recent global ETF inflows, suggesting that persistent central bank buying activity should be sufficient to offset such outflows from retail holders”.
- According to World Gold Council data, there was $3.4bln of outflows from Gold ETFs between May 5 and May 23 (31.4 tonnes). Monthly data for April covering Central Bank flows should be released around the start of June.
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US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
