DXY , weekly close 100.56
US02Y Yield 126 bps
US10Y Yields 238 bps
US Real Rates 16 bps
1D Z-Score .89
1W Z-Score 1.18
TrendFlex Alerts Yes
As Q1-17 comes to an end, the macro-landscape remains interesting for gold . U.S. economic data remains mixed. We continue to see soft (i.e. consumer and business survey data) to remain mixed. For instance, ISM manufacturing and non-manufacturing PMIs are pulling back a little bit while lagging CB consumer sentiment hits 16-year highs. The University of Michigan consumer sentiment gauge ticked lower to 96.9.
As we mentioned previously, sentiment tends to look like a derivative of the stock market:
Aside from gold’s eight-plus percent gain in the first three months of 2017, another key MacroView achievement was the prediction that the U.S. yield curve would flatten despite the optimism for the Trump agenda to get pushed through and maybe provide the economic steam that eluded the Obama Administration.
Heading into into 2017, bonds yields were rising at a troubling pace. It really wasn’t due to anything spectacular, in regards to growth, but due to the expectation that would continue to run hot. We took the opposite bet and believe much of the hype was centered around commodity price speculation and China’s voracious credit demand. Well, we’re already seeing pressures ease in China, Europe and the U.S.
If expectations for higher continue to wane, we’re likely to see central banks roll back hawkishness – especially if it’s combined with weak-to-mixed economic data. Without the pressures on monetary tightening, this should ease up pressures for both bonds and gold .
Gold currently trades at a .96 and .97 percent correlation with the U.S. 10-year and U.S. 30-year bond, respectively.
The dollar remains a crowded position with the 5-year percentile at the highest level since 2016. Even so, the dollar is on shaky ground. The only thing that remains supportive for dollar bulls is the Fed speak that 3-4 rate hikes are possible this year. We doubt that considering previous hawks are now beginning to roll back their rhetoric following poor data, causing the Atlanta Fed’s GDPNow model to hit .9 percent.
Near-term positioning on gold is neutral, although our TrendFlex alert is still active. Gold could see some price digestion with key levels below: