A1 Trading Company

May 9, 2024

Is Gold the Buy of 2024?

Frank Cabibi

Rates move lower after the BoE announced their latest monetary policy report to keep rates unchanged at 5.25%. Unemployment came in higher this morning with the 30-year bond auction coming up Thursday afternoon. In the midst of a slow news week in the US, gold is sitting at a very favorable position according to the EdgeFinder, and here's why.

EdgeFinder Analysis

Gold is now at +10 as the trend reading suggests further upside and retail is no longer majority long. Some reasons why gold is not moving so much this week is that 1: there is not a lot of major news in the US, and 2: investors could be waiting for CPI data.

Next week's inflation report could cause an increase in volatility for USD-related assets such as gold. If we look at the latest jobs report which showed a cooling in the market after NFP's dramatic miss in expectations, a higher or unchanged CPI could reignite stagflation fears. Gold tends to thrive off this sort of economic scenario in the US.

The stock market has been very resilient towards a cooling jobs market and the fears of "higher for longer" interest rates. This week and the weeks to come will be full of heavy earnings news as NVDA is to report on May 22. This slow melt up could just be a reaction to the less hawkish Fed tone and earnings season.

However, upside seems limited now that we are back near all time highs. With CPI in focus, it could serve as the single most pivotal indicator of risk sentiment in the market. We already have the numbers for NFP, so a higher or lower CPI is going to impact the indices. Higher CPI could likely cause a sell off in the stock market while a lower CPI could indicate a reemergence of risk appetite.

GBPUSD is now a neutral reading on the EdgeFinder due to several factors. There is mixed sentiment in the pair's fundamental score and a clear bearish bias in the sentiment score. Retail is now over 60% long this pair while COT is buying dollar and selling GBP.

Similar to the US indices, a higher CPI is likely not going to be bullish for GU. The BoE was decidedly unchanged in interest rates, so now it depends on the next inflation data for both the US and UK.

Retail Spotlight

Retail is now long crypto, metals, GU and Russell. Mixed positions are in gold, UJ, USDCAD, US30 while EU, NAS, and SPX500.

Smart Money Spotlight

Gold is still looking bullish according to our sentiment indicator between retail and smart money. COT remains majority bullish while the crowd is selling the metal this week.

Fundamental Spotlight

With NFP lower and unemployment claims coming in much higher than expected over the last several weeks, investors need a lower CPI number next week in order to keep a bullish bias on the indices. If not, gold may be seen as the new buy for 2024 as the Fed has to battle with worse economic conditions and higher inflation.

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