Today's Economic Highlight

Reminder

The COT reports are a good indicator for checking overall market sentiment. However, it is still important to note how separate prices react to USD strength and appropriate specific measurements and identify which has strongly reacted to the subtle changes to the USD--this will show you the overall strength of that currency against all other currencies. The COT report will give you an idea of where to look and who to match. When that specific shows you differently, it will be a good setup and market to take note of.

Market Overview

Gold and Copper are breaking 11-year highs as they make new records in the market. Silver, platinum, and other metals are rising against the dollar–telling us a weakening confidence in the dollar, the world reserve currency. 

This has been noted by the Central banks increasing their Gold reserves for diversification and a possible setting away from the dollar. 

In 2023, central bank gold purchases reached their highest level since 1968, with emerging market economies like China, India, Russia, and Turkey leading the way. China alone added 225 tons of gold to its reserves in 2023, the highest increase since 1977, bringing its total to 2,235 tons.

Other notable buyers include Poland, Hungary, and Singapore. Hungary tripled its gold holdings to 94.5 tons in 2021, while Singapore's central bank purchased about 75 tons cumulatively in the first nine months of 2023.

There is also the possibility that this amount may not be all the GOLD they have purchased and took ahold of in their country. This tells us that several countries are already looking into a possible USD drop and their loss of confidence in the currency. 

On the other side of the story, “A rising tide lifts all boats,” John Caruso, senior market strategist at RJO Futures, told MarketWatch on Friday.

“The common theme is electrification needs and the [U.S.] government's deficit spending at 6% of GDP,” he said. “We're running wartime- [or] recession-style deficits,” while experiencing neither, and “metals are taking notice,” he said.

“Gold, silver, and copper are all experiencing notable gains from ”economic uncertainty boosting demand for safe-haven assets, supply-chain disruptions impacting availability, and increased industrial demand, particularly for green technologies,“ said Adam Koos, president at Libertas Wealth Management Group. And ”despite differing specifics for each metal, the overarching theme here is a reaction to global economic and market conditions.

“While it's true that gold and silver often rise with a weaker dollar, their recent climbs can also be attributed to broader economic concerns and investor demand for diversification,” he told MarketWatch.

The dollar's mixed performance to date in 2024 “adds complexity, but the key driver remains the underlying economic sentiment and supply-demand dynamics,” said Koos.

As it currently stands, while the US economy is failing to see a drop toward the FEDs path to 2% inflation, GOLD will continue to rise as a means to hedge against inflation. However, it is also notable that during times of uncertainty, business growth is not their go-to but toward safe-haven assets that allow them to secure the current wealth they hold.

As it stands, diversification is key to securing your portfolios in these uncertain market conditions. While we see some growth in some of the equities like the S&P500, the US50, NASDAQ, the Russel, and the Dow Jones Industrial has closed above the 40,000 mark for the first time during market close on Friday. 

“Today (Friday) is a bit of a digestion day: we just broke out through record highs and now we're on a fourth straight week of gains, and the market appears to take a breaker,” said Keith Lerner, co-chief investment officer at Truist Advisory Services in Atlanta.

Traders see a 68% chance of the Fed's first rate cut in September, the CME FedWatch Tool showed.

In Treasuries, the yield on benchmark U.S. 10-year notes rose to 4.42%.

We are also seeing gains in Crude Oil with the price closing at 79.46 from its previous price of 78.82–following our call for a potential for Crude oil prices to go higher.

Geopolitically, we look into the current affairs of the Israel-Iran conflict and escalations. We are seeing a shift in military retaliation by means of Direct confrontation instead of proxies by Iran, a shift in Iran's strategy, and a heightened risk of escalation. Not to mention, the Israel negotiations with the Hamas for a ceasefire have fallen through. The breakdown in negotiations led to heightened tensions and military actions, with Israel seizing control of the Rafah crossing and launching operations in Rafah, indicating a continuation of the conflict rather than a lasting ceasefire.

GOLD - The market is showing a healthy momentum and volume for the bulls entering the market. We maintain our bullish bias for GOLD. The price has successfully broken through 2392.470 and is expected to climb toward 2431.705. After it breaks through the previous highest peak of price, we may see GOLD settling above it and into our supply zone. Although, the current price closed last Friday is already a record for GOLD.

SILVER -As per our expectations, Silver has broken through 29.018 and even went beyond 29.900, the upper range of the daily range. If the price settles here and starts collecting orders, we will start seeing further growth in Silver prices. However, we may also see the market move parabolically toward the upside as the increase in Silver prices is also driven by economic conditions and sentiment. 

DXY -The market has followed through the fall as we expected after it tested 104.607. The sudden increase caused by the news was corrective in nature, allowing the market to collect orders. We continue to view this market to be very bearish, alongside its other pairings. We expect a weaker dollar across the trading board.

GBPUSD -The price has climbed above the anchor point at 1.26487 of the daily range and we can see the price testing 1.27938 with the potential to go further and beyond said structure. We continue to call this pair as bullish as we also see the completion of the SHS structure below the daily range.

AUDUSD - This market is very bullish in nature and from the construction of its structure, we can tell that AUDUSD is only planning to keep moving upward. With that, we continue to call this market bullish. There may be a consolidation within the coming week for the collection of orders, but we are still very positive in our bias for this market.

NZDUSD - The market has now broken through 0.60847 as per expectations. There is still a way to go before the next supply zone. Until then, we view this market to be very bullish with the potential to consolidate for the collection of orders. We maintain our bias for this market as bullish.

EURUSD - The price has settled above the daily down trendline and is showing further strength into the upside. With that, we continue to view this market as bullish.

USDJPY - Despite the dollar weakness being evident across the pairs, we can see no significant improvements for the Yen. We anticipate a potential BoJ intervention and suggest everyone be wary of trading this market. However, we are sure that the prices will seek to go down, regardless of by what means it will use for this. With that in mind, we call a bearish market for the USDJPY. 

USDCHF - The CHF weakness is evident as proven by a lack of action in this market. We continue to call USDCHF to be a seller's market but with a possibility for a climb back toward 0.92248. We do not discount this change in momentum. With that in mind, we suggest everyone exercise caution while trading in this market.

USDCAD - The price is looking very bearish with the creation of lower highs and now, a lower low. We continue to call this market bearish. While there wasn't much change seen in the price, it has tested 1.36052 again before markets closed on a red.

COT Reports Analysis

CAD - Weak (5/5)

CHF - Weak (4/5)

GBP - Weak (3/5)

JPY - Weak (1/5)

EUR - Strong (5/5)

AUD - Weak (4/5)

NZD - Weak (4/5)

USD - Strong (4/5)

GOLD - Strong (5/5)

Silver - Strong (5/5)

Copper - Strong (5/5)

Platinum - Strong (5/5)

WTI Crude Oil - Strong (4/5)