Gold Traders’ Report - April 12, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
APR 12, 2019

Gold had a modest rebound last night after yesterday’s $17 thumping, rising in a tight range of $1291.20 - $1295.80.  It was helped by a pullback in the US dollar (DX from 97.18 – 96.80), which was lifted by strength in the pound ($1.3050 - $1.3119, UK Government and Labour Party resumed talks at breaking deadlock in Parliament over Brexit, May hints at customs union compromise) and the euro ($1.1251 - $1.1322, stronger Eurozone Industrial Production) that overcame some weakness in the yen (111.55 – 111.99, improving risk sentiment).  A climb in global bond yields (JGB from -0.059% to -0.0355%, US 10-year from 2.49% - 2.547%, German Bund from -0.024% to +0.045%, UK Gilt from 1.125% to 1.200%) and firmer global equities were a headwind for gold, however.  The NIKKEI rose 0.7%, the SCI was flat, European markets were up from 0.3% - 0.5%, and S&P futures were +0.5%.  A rebound in oil (WTI to $64.62) was supportive of equities as was growth in China’s credit (New Yuan Loans and Aggregate Financing exceed expectations) and exports.

Ahead of the NY open, better earnings reports from JPM Chase, Wells Fargo, and PNC along with news that Chevron was buying Anadarko Petroleum, and that Disney unveiled a new streaming service lifted S&P futures further (2908).  Though the DX continued to soften (96.77), gold came off its high and slipped to $1292. 

At 8:30 AM, a stronger than expected reading on US Import Prices (0.6% vs. exp. 0.4%) and Export Prices (0.7% vs. exp. 0.2%) were another boost to S&P futures (2912).  The US 10-year bond yield climbed to 2.553% (3-week high), and the DX had a brief slight bounce to 96.82.  Gold sank further, but found support at $1290.50. 

US stocks opened stronger (S&P +22 to 2910, high since 10/4), led by gains in the Financials sector.  The 10-year yield hovered around 2.55%, but the DX sank to 96.74.  The greenback was under pressure from continued firmness in the pound ($1.3132) and the euro ($1.1324).  Gold was caught in the cross currents, but edged up to $1292.

At 10 AM, a worse than expected report on the University of Michigan Consumer Sentiment (96.9 vs. exp. 98.3) took the wind out of the sails of US stocks into the late morning (S&P +10 to 2898).  News that the EC was seeking punitive tariffs on $12B worth of US exports in retaliation for halting tax breaks to Boeing and a pullback in oil (WTI to 63.91) also weighed.  The 10-year yield ticked down to 2.542%, while the DX remained soft between 96.75-80. Gold climbed in response to reach $1295, but residual selling interest knocked it quickly back to the $1292 area.  

In the afternoon, US stocks turned back higher (S&P finished +19  to 2907 ), with the Materials and Communication Services sectors joining the Financials in leading the rally.  The 10-year yield resumed its climb to 2.563%, and the DX recovered to 96.99.  Gold was pressured lower, but bargain hunting bids defended yesterday’s $1290 low.  It was $1290 bid at 4PM with a loss of $2.

Open interest was off 7.5k contracts, reflecting a fair amount of long liquidation from yesterday’s plunge.  Volume surged with 334k contracts trading.  The CFTC’s Commitment of Traders Report as of 4/9 showed the large funds adding 5.7k contracts of longs and cutting 5.1k contracts of shorts to increase their net long position to 105k contracts.  This was done on gold’s rally from $1292 - $1306, showing a decent amount of short covering along with new longs fueling the advance. While gross shorts decreased, they remained elevated at 94k contracts.  Moreover, since the report, a fair amount of new shorts emerged (especially during the plunge yesterday to $1290), lifting gross shorts back over 100k contracts, and taking the Net Fund Long Position back under 100k contracts.  This still sets up the gold market very well to resume moving higher as many weaker longs have been forced out – and won’t weigh on advancing prices.  Also, the still elevated amount of gross shorts - when forced to cover  - will help accelerate any upside moves. 

Some bulls were disappointed with today’s $2 decline, given the pullback in the DX.  However, other bulls were relieved that the gold held as well as it did, given the rally in equities and the surge in the US 10-year bond yield back over 2.55%.  Bulls remain encouraged that gold held $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 today’s Commitment of Traders Report (as of 4/9) that still has the large funds with a significant gross short position (94k 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 trendlinefrom 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).

Some bears were disappointed that given the strong rally in stocks (S&P got within 1% of its all-time high of 2940 made last October) and the move over 2.55% in the 10-year bond yield gold didn’t drop further to test  its 100-day moving average at $1288.  Bears feel that a breach of this level could set off a cascade of selling below the confluence of support levels between $1285-77. 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 4 months to continue (encouraged by the recent golden cross in the S&P– 50 day moving average crossed 200-day moving average, now within 1% of all-time high).  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 $1288 (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 Monday on US Empire State Manufacturing Index, Net Long-term TIC flows and comments from the Fed’s Evans and Rosengren for near term guidance. 

In the news:

Brexit black hole – divorce implosion, deal, or election?:   https://www.reuters.com/article/uk-britain-eu-scenarios/brexit-black-hole-divorce-implosion-deal-or-election-idUSKCN1RO1O5

World Silver Survey 2019 – Silver Institute:   https://www.silverinstitute.org/wp-content/uploads/2019/04/WSS2019.pdf

Be prepared for all possibilities – the case for gold:   https://www.degussa-goldhandel.de/wp-content/uploads/2019/04/degussa-marktreport-engl-11-04-2019.pdf 

Resistance levels: 

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

$1296 – 4/12 high

$1300 – psychological level, options

$1301 – 4/10 low

$1301 – 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

*$1311 – 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 -91 double bottom – 4/11 and 4/12  lows

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

*$1288– 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