FxWirePro: A run through on bullion market dynamics

Gold price dynamics: 

The maximum consumer of gold, ‘China’ increases gold reserves for the 4th consecutive month in March; Turkey also bought gold, in addition to Russia. In the past decade, only Russia has added more gold to its reserves than China.

While the Central banks’ unexpected buying has only proven to be a short-term price mover, as shown when China surprisingly bought 19.43m oz in May 2015.

Gold may find more upside momentum in the short-term from concerns over Brexit and Trump’s threats of a trade war with the EU.

US Treasury: Amid relatively stronger data out of the US, 10-year yields rose 8bp last week, retracing back to levels printed just following the March FOMC meeting, as part of a bearish steepening of the curve. US 10-year real yields also rose more than 5bp, but gold prices remained relatively firm despite the negative price drivers, rebounding strongly the only time they tested below $1,285/oz in the recent past. 

In total, despite the move higher in yields, gold ended last Friday at around $1,292/oz, within a dollar of where it started the week, before gaining more than $5/oz in early trading this morning. After last week’s move higher in nominal yields, 10-year Treasuries no longer look as stretched as they did the week prior the residual vs a fair value model halved to 15bp too low last week with gold so far escaping some of the immediate fundamental downside we were flagged last week. Yet at the same time, while gold held firm against negative rates catalysts last week, other drivers don’t necessarily look poised to push prices higher in the very near term. 

In FX, our strategists see the recent macro data heralding more range-trading in G10 FX rather than a turn lower in USD as the bar for a USD sell-off is quite high given:

1) US rate expectations have furthest to back up if growth does rebound, and 

2) there are no positive local currency stories in G10 bar NOK. 

Elsewhere, despite equity markets moving to fresh year-to-date highs, our global equity strategists remain constructive, seeing the current market backdrop as very similar to the 2015/16 mid-cycle correction episode, rather than the end of the cycle. This could, in theory, begin to increasingly erode any built-up “safe haven” gold demand. To this end, despite a reduction of more than 38,000 contracts last week, net non-commercial positioning on Comex still stands just below 100,000 contracts long. 

Overall, the market tone for the day is quite constructive with broad gains in equity indices across Europe and most of Asia. U.S. equity futures are positive and Treasury yields are up. Oil, copper, and gold are unchanged on the day. Courtesy: JPM

Currency Strength Index: FxWirePro's hourly EUR spot index has shown 77 (bullish), while USD is flashing at -92 (bearish), while articulating at 12:51 GMT.

For more details on the index, please refer below weblink:

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