Gold hit a record high amidst a weakening USD, lower treasury yields and softer US economic data. Not only was Gold having its time in the sun, but both the S+P and Nasdaq reached new record highs, driven by ongoing tech company results regardless of the Federal Reserve looking to delay interest rate cuts to the market. Expectations are for loosening monetary policy to start in June. Our expectations are for later in the year. Against this, forward-leading economic indicators remain weaker than expected. ISM data revealed that factory activity contracted more than anticipated. It is interesting to note that Bancorp shares plummeted by 25% on the back of a material weakness in loan risk control. A heightened concern as interest rates remain comparatively high and U.S. home prices are currently at all-time highs, and less affordable (relative to income and mortgage rates) than at the height of the 2006 housing bubble. That's after prices skyrocketed by about 40% during the pandemic. Sales of existing homes are very depressed, just as bad as after the global financial crisis. 

But first Gold, the surge in gold prices is undoubtedly remarkable, with the precious metal reaching unprecedented levels. This surge can be attributed to several key factors, each contributing to the bullish sentiment surrounding gold in the market. One significant factor driving the surge in gold prices is the weakening of the US dollar. As the value of the dollar declines, investors often turn to gold as a safe-haven asset to preserve their wealth and hedge against currency depreciation. Additionally, lower treasury yields have made gold more attractive as an investment alternative, further fueling demand and driving up prices.

Furthermore, softer US economic data has added to the bullish sentiment surrounding gold. Economic indicators such as GDP growth, consumer spending, and manufacturing activity have shown signs of weakness, raising concerns about the health of the US economy. In times of economic uncertainty, investors tend to flock to safe-haven assets like gold, driving up demand and pushing prices higher. The combination of these factors has created a perfect storm for gold prices, leading to its recent record-breaking rally.

Gold's rally is not an isolated event but is part of a broader trend of strength in the financial markets. Both the S&P 500 and Nasdaq indices have reached new record highs, driven primarily by strong performances from tech companies. Despite concerns about the Federal Reserve's plans to delay interest rate cuts, the equity markets have continued to rally, fueled by optimism about the economy's recovery and corporate earnings growth. This divergence between the performance of the equity markets and the underlying economic indicators highlights the disconnect between Wall Street and Main Street.

Market expectations are for monetary policy to begin loosening in June. However, our projections suggest a later timeframe for the implementation of such measures. This delay could have significant implications for the markets, as investors adjust their expectations and positions accordingly. The timing and pace of monetary policy changes will depend on a variety of factors, including the trajectory of economic growth, inflationary pressures, and geopolitical developments.

Despite the optimism in the equity markets, forward-leading economic indicators remain weaker than expected. The latest ISM data revealed a sharper contraction in factory activity than anticipated, raising concerns about the health of the manufacturing sector. This downturn in manufacturing activity could have ripple effects throughout the economy, affecting employment, consumer spending, and business investment. It is crucial for  policymakers to closely monitor these indicators and take appropriate action to support economic recovery.

The recent plunge in Bancorp shares serves as a stark reminder of the risks lurking beneath the surface of the market rally. The material weakness in loan risk control has raised concerns about the stability of the financial sector, particularly amidst elevated interest rates and soaring home prices. The current housing market resembles the conditions leading up to the 2006 housing bubble, with home prices reaching all-time highs and affordability becoming a growing concern. Sales of existing homes are depressed, reminiscent of the aftermath of the global financial crisis. This underscores the fragility of the economic recovery and the need for vigilance in managing systemic risks.

This week sees potential some good words of wisdom from the Fed Powell’s Testimony on Thursday and perhaps some concluding remarks from China’s National People’s Congress meeting which concludes at end of the week. On the data front, ISM Services, Factory Orders and finally US Nion Farm Payrolls on Friday. In China, apart from the National Congress, we have hopefully upbeat Caxian Services followed by the Inflation Rate on Friday. Forecast is a little more upbeat for all Chinese data and expect this as its Congress week. 

On the position front, we are …USD/JPY (150.44) … in the Dow (38 576) and closed local … for small loss.  In the currencies still … both the AUD/USD (US0.6770) and AUS/CHF (0.5707). In the bullion market, happy to be … Silver (US23.19) and Gold (US2046).

Trade Focus:

Fundamentals:

Gold and Silver: It seems a little strange to …

Technical Analysis:

Gold, the longer the metal stays at record highs the more confident you can be …

Support              …

Resistance         …

Momentum        …