**Weekly: Central Bank(s) Buying Strength Now

"This leaves us with one explanation –that the latest XAU rally reflects growing demand from central banks."

Gold is now up for 8 straight days and 14 of the last 17.

The longest winning streak since July 2020...

Silver was no slacker either...

 

 Let’s look at the related market backdrop contributing to the rally.

2- Macro Markets

US Economic data disappointed non-stop all week… Every one of these below was a miss

Actual / Forecast

• Factory orders Jan. -3.6%/ -3.1%
• ISM services Feb. 52.6% / 53.0%
• ADP employment Feb. 140,000/ 150,000
• U.S. wholesale inventories Jan. -0.3%/ -0.1%
• U.S. unemployment rate Feb. 3.9%/ 3.7%

Bad economic news was viewed as good news for almost everything as rate-doves assumed once again the Fed was going to cut sooner rather than later. The market's expectations for rate-cuts in 2024 ticked back up to 4 rate-cuts (from 3). We shall see that was ground zero for buying of Bonds, some stocks, Gold, Silver, and Bitcoin.

The 10Y Yield dropped down to almost 4.0% (closing below its 50DMA) at its lowest in almost six weeks...

The dollar was down for the sixth straight day Friday, ending the worst week in three months for the greenback…

But, while yields were lower on the week, stocks were more mixed with Nasdaq actually net down on the week as NVDA spoiled the party.

NVDA lead the swoon, wiping out 5.5% in 4 hours at the end of the week…

 

Which brings us to Gold and Silver

3- Gold and Silver

There were multiple Big buyers all week. These were not discrete and they left a big imprint unlike the buyer the previous months who operated quietly using an algo for execution.

After almost 2 months of quiet accumulation by a whale, momentum buying stepped in and ramped things…

4- Financial Investor Activity

Gold attained these gains despite continued aggressive outflows from American Gold ETFs…

But… as paper Gold shrunk, Physical Gold was increasingly called away from Comex.

Comex Vaults continue to be depleted of Gold, confirming the price action was driven by physical bullion demand…

And then there was this...

Just looked at Hartnett weekly flow show.
Gold Comment:
1-It’s interesting that Hartnett has amended his Bonds, Breadth and Bullion Thesis to exclude Bullion. Meanwhile, Gold has outperformed most everything except tech since his comment.

2-People are still selling gold in…

— VBL’s Ghost (@Sorenthek) March 8, 2024

5- Trading Cohort Activity

Big Boys Are Finally Back:

Global Macro Discretionary Funds, The ones who started buying End of November and drove Gold up on December 3 and 4, stepped back in the market in a big way. Options activity is a tell of their interest…

Call buying once again exploded as in December, but this time the buying rivaled the SVB crisis levels…

CTA Analysis:

Gold adds to longs, Silver now long, Copper (not shown) now short...

CFTC Analysis:

Long funds added (Macro DRT and CTA), Short-funds covered, Bank Traders added to shorts and sold out existing length, The producer/enduser merchant diad added to all their positions in normal fashion. Other activity was one-way and heavy with longs adding and shorts covering. Some of this was presumably option related. The dynamic was macro fund buyers initiating ( the same types who came in after the Nov 30th close), banks fading and selling to them. Macro funds buying options OTC, Banks buying deltas to hedge,  Producer/endusers doing their thing. Some swing funds started to sell the rally, possibly gamma hedging.

Open interest changes this week confirm this report as normal (if massive) activity. What happened for the last two months was not normal...

6- Bank Research Excerpts

Since December 3rd, we've speculated a sovereign wealth fund or CB was in the market. We believed that order was finished being filled between 5 and 10 trading days ago. To their credit, while other banks have danced around the topic asking questions and saying things like "This is interesting" and "this is strange", Credit Agricole is the first institution to come out and say it publicly.  

Credit Agricole: Just for the record.

XAU: just for the record.The gold price hit a new all-time high in recent days fuelling some questions about the drivers of the move.

Indeed, a look at the XAU’s ‘traditional’ drivers like the level of global real rates and yields as well as the path of the USD would suggest that neither can explain the latest rally of the precious metal.

Moreover, with global risk sentiment still largely robust there seems to be little evidence that demand for safe-havens is behind gold’s recent gains. This seems to be particularly the case given that its rally went hand in hand with the rally in Bitcoin that is also seen as a ‘real asset’ but that is positively correlated with risk appetite.

A look at market positioning would further suggest there is no evidence that speculative demand for gold is driving the latest price action. This leaves us with one explanation –that the latest XAU rally reflects growing demand [at elevated prices] from central banks.

According to the latest data courtesy of the IMF, gold in central bank reserves has grown by more than 1% on average between January 2024 and January 2023. The latest price action in gold could suggest that the demand has intensified in recent weeks.

[Full report includes: CA*, GS,* ING*, BOA, DB]

The bottom line is: a sovereign wealth fund (or funds) and/or  CBs likely of Eastern origin have been buying Gold.