Gold Traders’ Report - April 11, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
APR 11, 2019

Gold softened overnight, moving lower in a range of $1298 - $1309.25 while fading a firmer US dollar (DX from 96.88 – 97.08).  The DX was boosted from weakness in the yen (110.89 – 111.28, improving risk sentiment), pound ($1.3109 -$1.3065, while threat of no-deal Brexit mitigated, uncertainty over longer delay weighs), and the euro ($1.1287 - $1.1262, Draghi’s dovishness from yesterday still resonating).  Gold was also pressured by firmer global bond yields (UK Gilt from 1.105% to 1.138%, German Bund from -0.032% to -0.012%, US 10-year from 2.465% to 2.488%), and mostly firmer global equities.  The NIKKEI was up 0.1%, the SCI fell 1.6%, European shares were up from 0.1% to 0.7%, and S&P futures gained 0.1%.  Equities were boosted by further headway in US-China trade negotiations as China offered to open up its cloud computing sector to foreign companies, while US Treasury Secretary Mnuchin said the sides have pretty much agreed on an enforcement mechanism.  A dip in oil weighed on stocks however, with WTI slipping from 5-month highs to $63.74.  

 At 8:30 AM, stronger than expected reports on US PPI (0.6% vs. exp. 0.3%), Core PPI (0.3% vs. exp. 0.2%) and Jobless Claims (196k vs. exp. 210k, 50-year low) lifted S&P futures higher (2898), and took the US 10-year bond yield up to 2.495%.  The DX climbed to 97.14, also aided by a dip in the euro ($1.1255) from some dovish comments from the ECB’s Vileroy (ECB to keep policy as easy as needed).  Gold was knocked lower, and broke through support at $1297 (Tuesday’s low) to reach $1295.  Comments from Fed nominee Moore not favoring a gold standard contributed to the decline.

 US stocks opened slightly firmer (S&P +6 to 2894), with the Industrials sector leading gainers.  The move was aided by some dovish comments from the Fed’s Clarida (data revealed growth slowing somewhat, inflation pressure has been muted, prospects for foreign economic growth have been marked down and international risks such as Brexit remain), and Bullard (Fed’s normalization over, faces challenges of low inflation).  The 10-year yield dipped to 2.49%, and the DX retraced to 97.  Gold recovered and clawed back to $1299, but resistance at $1300 held. 

 Toward mid-day, US stocks traded lower (S&P -6 to 2882), dragged down by Apple and the Health Care and Energy sectors.  A further decline in oil (WTI to $63.35) contributed to the decline.  The 10-year yield hovered around 2.495%, but the DX rallied back to make a fresh intraday high at 97.20.  The dollar was helped by a resumption of weakness in the pound ($1.3061) and the euro ($1.1255).  Gold continued its decline, and took out its prior low and tripped some stops below $1292 (4/8 low) to reach $1289.75  - with a fair amount of long liquidation seen. 

 In the afternoon, US equities turned higher to end unchanged (S&P finished 2888), helped by some dovish comments from the Fed’s Kashkari (there is still slack in the labor market and inflation is still below target so no need to tap the brakes, asymmetric target and actual inflation has averaged around 1.7% below  2% target - if inflation  were at 2.3% for 7 years that shouldn't be concerning).  The 10-year yield edged up to 2.506%, while the DX remained steady near its high, trading between 97.15-20.  Gold was similarly stable between $1290-92, and was $1291 bid at 4PM with a loss of $17.

 Open interest was up 7.4k contracts, showing another decent chunk of new longs coming in from yesterday’s $4 advance. Volume increased with 229k contracts trading. 

 Bulls were disappointed with gold’s in ability to rally significantly off of the dollar’s dip below 97 yesterday and last night, and then with the $17 decline today - especially with US stocks remaining flat and with a relatively modest increase in the DX.  However, bulls remain encouraged that gold remains $10 over its recent $1281 low, and expect the market to consolidate at present levels before making another attempt higher.  Bulls maintain that gold’s correction down from $1347 had been overdone, as was the pullback from $1325, and have used the recent dips to get long(er) at more attractive levels.   Bulls feel that the trend is their friend and that the up move going back to the 8/16/18 $1160 low is still intact.  They look for the strong rally over the past 7 months to carry further, expecting continued volatility in equity markets along with the surprisingly dovish statement from the Fed at its last meeting to keep downward pressure on US interest rates and the dollar (including recent dovish comments from Trump, Kudlow, and Fed nominee Moore), which should help drive gold higher.    Bulls also point to last Friday’s Commitment of Traders Report (as of 4/2) that still has the large funds with a significant gross short position (increased to 99k contracts).  Therefore, the bulls feel the gold market remains set up to move higher, as these shorts will provide fuel to further upside moves – when forced to cover.  Bulls look for gold to consolidate in the low $1290’s, and then mount a re-test of initial resistance at $1309-12 (triple top, down trendline from 2/20 $1347 high) followed by $1314 (50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low), then $1319 (3/27  high).

 Bears cheered today’s decline – especially given the modest up move in the DX and 10-year yield, and the unchanged S&P.  Bears were encouraged that gold failed to hold above $1294.50 (4/4 key reversal top), and that it is within $4 of tripping the 100-day moving average at $1287, which they believe – if breached – could set off a cascade of selling below the confluence of support levels between $1285-77. While some bears took profits ahead of support at $1292, other bears feel the downside has legs and maintain that the recent two bounces from $1281 were just modest upticks within the early stages of a more significant downside correction.  They feel that gold’s advance to $1347 had been overdone – having rallied $70 since the $1277 low on 1/24 (5.48%), $114 since the $1233 low on 12/14 (9.25%), and $151 since the $1196 low on 11/13 (12.63%).  They feel that the 20% correction in equities – much of which occurred during very illiquid holiday trading – was also overdone, and expect the rebound seen over the past 15 weeks to continue (encouraged by the recent golden cross in the S&P– 50 day moving average crossed 200-day moving average).  Bears also feel that the strength in the US dollar has legs – despite the surprise dovishness from the Fed at their last meeting - given the recent lousy Eurozone data that forced the German 10-year bund yield back into negative territory last week.  They feel that the US remains the sole global growth engine, and will continue to grow – despite the pronounced slowdown in global growth prospects.  This, they feel, should keep the US dollar well bid and will continue to pressure gold south.  Bears expect long liquidation to resume and will be gunning for stops below $1287 (100-day moving average) $1284 (up trendline from 12/28 $1274 low), $1281-84 (5 bottom 3/4, 3/5, 3/6, 3/7, and 4/4 lows), $1277-80 (7 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, 1/24 and 1/25 lows) to bring the mid-$1260’s into play. 

 All markets will continue to focus on geopolitical events (especially Brexit news), developments with the Trump Administration (especially on US-China trade, potential legal issues), Q1 corporate earnings, oil prices, and will turn to reports tomorrow on China’s Trade Balance, Germany’s Wholesale Price Index, Eurozone Industrial Production, US Import Prices, Export Prices, University of Michigan Consumer Sentiment, Baker Hughes Rig Count, Commitment of Traders, and comments from the ECB’s Praet for near term direction.  

 In the news:

China’s gold demand up marginally so far this year:   https://www.sharpspixley.com/articles/lawrie-williams-china-gold-demand-marginally-up-so-far-this-year_292032.html

 South African gold output has longest losing streak since 2009:   https://www.moneyweb.co.za/news-fast-news/gold-output-has-longest-losing-streak-since-2009/

YTD Performance


12/31/2018

4/11/2019

Change
% Change
Gold


1282.5

1291

8.5

0.663%

DX


96.06

97.19

1.13

1.176%

S&P


2505

2888

383

15.289%

JYN


109.63

111.67

2.04

1.861%

Euro


1.1466

1.1254

-0.0212

-1.849%

US 10-year bond yield


2.686

2.501

-0.185

-6.888%

Oil (WTI)


45.45

63.71

18.26

40.176%

 

Resistance levels: 

$1292 – 4/8 low

$1293-95 –quadruple top 4/2, 4/3, 4/4, and 4/5 high

$1297 – 4/9 low

$1300 – 3/29 high

$1300 – psychological level, options

$1301 – 4/10 low

$1302 – 20-day moving average

$1303-05 – former breakout (6/15/18 top) and prior 5 bottom support (1/29, 2/7, 2/11, 2/13, and 2/14 lows)

$1306 – 4/9/high

$1306 – 40-day moving average

$1307 – 50-day moving average

$1309 - 12 - triple top – 3/28, 4/10 and 4/11 highs

*$1312 – down trendline from 2/20 $1347 high

*$1314 – 50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low

$1319 - 3/27  high

$1322  -3/26 high

$1325 – options

$1325 – 3/25 high

$1327 – 2/28 high

$1330 – double top – 2/27 and 2/26 highs

$1333 –double top 2/22 and 2/25 highs

$1342 – double top - 2/19 and 2/21 highs

*$1346-47 – double top 2/20 and  4/20/18 highs

$1353-56 – triple top – 4/12/18, 4/18/18 and 4/19/18 highs

*$1365-67– triple top – 8/2/16, 1/25/18 and 4/11/18 highs

*$1373-75 – double top – 7/6/16 and 7/11/16 highs

 Support levels:

$1290 – 4/11 low

$1287-89 – quadruple bottom 3/28, 3/29, 4/1 and 4/3 lows

*$1287– 100-day moving average

*$1284 – up trendline from 12/28 $1274 low

$1281-84 – 5 bottom 3/4, 3/5, 3/6, 3/7, and 4/4 lows

*$1277-80 - 7 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, 1/24 and 1/25 lows

$1275 – options

$1274 – 12/28 low

$1265-67 – 12/25, 12/26 ,and 12/27  lows

$1259 – 12/24 low

$1254 – 12/21 low

$1250 – options

$1250 – 200-day moving average