Gold Traders’ Report - April 16, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
APR 16, 2019

Gold pulled back further last night, but trade remained confined to a relatively tight range of $1282.50 - $1288.75.  It once again breached the neckline from its head and shoulders pattern at $1284 during European time, but dip buying brought it back to $1285.  It was pressured by a modest rise in the US dollar, as the DX moved back over 97 (96.88 – 97.08).  The greenback overcame some strength in the yen (112.05 – 111.84, Japan’s Tertiary Index stronger) and was lifted by weakness in the euro ($1.1314 - $1.1284, stronger ZEW surveys in Germany and the Eurozone overcome by rumors that several ECB members doubted projections of a growth rebound in 2nd half ’19), and the pound ($1.31 - $1.3073, lack of positive Brexit headlines, slightly weaker UK employment data).  Gold was also softened by a bounce in the US 10-year bond yield (2.5745%, 1-month high) and strong gains in global equities.  The NIKKEI was up 0.2%, the SCI shot up 2.4%, European markets ranged from flat to +0.6%, and S&P futures were +0.3%.  Stocks were boosted by some dovish comments from the Fed’s Rosengren last night (economy  has slowed, favors adopting a target inflation range that recognizes the challenge of low rates, waiting to see convincing evidence that the Fed can sustain 2% target), better earnings from J&J and UnitedHealth, equity bullish comments from BlackRock’s Fink (stocks can have a melt-up from here) and a bounce in oil (WTI to $63.79). 

 Selling on the NY open pushed gold once again through $1284 (up trendline from 12/28 $1274 low).  However, continued selling into a vacuum of bids sent the market through $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) and $1274 (12/28 low)  to reach $1273 – a 4-month low.   Long liquidating sell stops were seen, with a tick up in the 10-year yield to 2.585% and a bounce in the DX to 97.04 contributing to the move. 

 At 9:15 AM, weaker than expected readings on US Industrial Production (-0.1% vs. exp. 0.3%) and Capacity Utilization (78.8% vs. exp. 79.2%) knocked US stocks off their highs (S&P +2 to 2907), and pushed the 10-year yield down to 2.571%.  The DX slipped to 96.95, and gold had a modest bounce back to $1277 by the late morning.

 Into the afternoon, US stocks remained fairly steady, holding onto their modest gain (S&P +3 to 2909).  The US 10-year bond yield edged up to 2.59%, while the DX ticked up to its overnight high at 97.08.  Gold slipped lower, but support at its earlier $1273 low.  

 Open interest was off 4.8k contracts, reflecting a net of long liquidation from yesterday’s decline.  Volume was higher with 244k contracts trading.

 Bulls are disappointed with gold’s continued decline, and that it failed to hold above the 100-day moving average ($1289) and the confluence of technical support levels down to $1274.  They’re concerned that the weakness occurred despite the DX remaining fairly stable, and only a moderate advance in US stocks.  However, bulls feel that the recent selling has been overdone ($38 in last 4 sessions) and is approaching oversold (14-day RSI = 35).  Similarly, they feel 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 (up trendline at $1259).  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 Friday’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 (though most in the money now).  Bulls look for gold to consolidate in the low $1270’s and then mount a re-test of initial resistance at $1277-80.

 After 3 attempts at breaching the head and shoulders neckline at $1284, bears finally broke through.  They were encouraged as liquidating longs accelerated the downside move, taking out key technical levels through the 12/28 $1274 low.  While some bears took profits on the way down, other bears feel the downside has legs.  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 about 1% from its 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 recently. 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 continue and see no technical support until $1265-67 (triple bottom 12/25, 12/26 ,and 12/27  lows) followed by $1259 (12/24 low)

 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 Japan’s Trade Balance, Industrial Production, Capacity Utilization, China’s Industrial Production, Retail Sales, GDP, UK CPI, PPI, Eurozone Trade Balance, CPI, US Trade Balance, Wholesale Inventories, Wholesale Trade Sales, Oil Inventories, Fed’s Beige Book and comments from the Fed’s Harker and Bullard for near term direction. 

In the news:

World Gold Council to develop Chinese gold market:   https://www.miningreview.com/gold/world-gold-council-chinese-gold-market/

Gold could hit $1400 by end of 2019 – INTL FCStone:   https://www.cnbc.com/2019/04/16/investing-gold-could-hit-1400-an-ounce-by-end-2019-intl-fcstone.html

Venezuela sells $400 M in gold amid sanctions:   https://www.bloomberg.com/news/articles/2019-04-15/venezuela-is-said-to-sell-400-million-in-gold-amid-sanctions

YTD Performance


12/31/2018

4/16/2019

Change
% Change
Gold


1282.5

1274

-8.5

-0.663%

DX


96.06

97.07

1.01

1.051%

S&P


2505

2909

404

16.128%

JYN


109.63

111.99

2.36

2.153%

Euro


1.1466

1.1285

-0.0181

-1.579%

US 10-year bond yield


2.69%

2.59%

-0.001

-3.574%

Oil (WTI)


45.45

63.63

18.18

40.000%

 

 Resistance levels: 

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

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

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

$1289– 100-day moving average

$1289 – 4/16 high

$1290 -91 double bottom – 4/11 and 4/12  lows

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

$1296 – 4/12 high

$1299 – 20-day moving average

$1300 – psychological level, options

$1301 – 4/10 low

$1303 – 40-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 – 50-day moving average

$1306 – 4/9/high

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

*$1310 – 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:

 $1275 – options

$1274 – 12/28 low

$1273 – 4/16 low

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

$1259 – 12/24 low

$1254 – 12/21 low

$1251 – 200-day moving average

$1250 – options