A Glimmer for Gold: Double Top or Bottom?

Thursday's gold rally to $1758 triggered cheers of a doube-bottom rally, but today's pullback to $1730 raised familiar fears of a double top. US persisted on the upside after a brief interruption from a jump in yields when US PPI posted its biggest jump since Sept 2011 (God's previous peak). Canada jobs reports surprised on the upside (as did all other major G7 emloyment reports recently). CAD is the strongest of the day, while USD broadly lower on the week. We look further at the yellow metal ahead of next week's high profile events (US CPI, JPM & Goldman earnings and treasury bond auctions). 

Gold went from a post-pandemic darling to a hated asset in a hurry. The long-term implications of ultra-low rates and massive fiscal spending are being ignored for now as the market focuses on the reopening. At the same time, crypto is sapping would-be gold buyers as prices of alt-coins continue to climb.

Technically through, the chart is compelling at the moment. Gold put in a double bottom in March at $1676 but it won't be confirmed until a close above the mid-March high of $1755. It closed just below on Thursday after an $18 gain. If it breaks, the measured target is $1864/65 but if it fails, expect a return to $1680s  or below.

Interestingly, the jump in PPI inflation triggered a knee-jerk drop in gold as attention fell on rising bond yields. This highlights the potential for further yields gains weighing on gold next week upon the release of CPI and 3-year, 10 yr and 30-yr Treasury auctions.   

Canada unemployment rate plunged to 7.5% from 8.2%, while employment added 303K new jobs in March. CAD is in an interesting spot though. It's largely shrugged off the latest lockdowns, which are growing increasingly stringent. That's because the government now estimates that 75% of adults will have the vaccine by mid-June. The loonie is also piggybacking of strong US growth. We also keep an eye on chatter of a BoC taper.

The driver for the next leg is likely to be commodities. Oil has been narrowing since March 18 and is coiling up for a breakout. There are few obvious catalysts aside from Iran negotiations but watch WTI closely for a quick decline to $54 or a rally back above $65.