Gold Traders’ Report - April 17, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
APR 17, 2019

Gold was choppy last night, trading either side of unchanged in a narrow range of $1274.75 - $1279.80.  It rose to its $1279.80 high during Asian time where it was capped by former support at $1277-80 (7 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, 1/24 and 1/25 lows).  The yellow metal was lifted by a pullback in the US Dollar (DX from 97.12 – 96.81), which was pressured by strength in the yuan (6.7100 – 6.6830, stronger Chinese GDP, Industrial Production and Retail Sales), the euro ($1.1280 - $1.1324) and the pound ($1.3032 - $1.3067).  Later during European time, however, gold sank to its $1274.75 low as the DX rebounded (96.97).  The greenback was supported by a pullback in the euro ($1.13, Germany slashes growth forecast from 1% to 0.5% for 2019), and the pound ($1.3032, misses on UK CPI and PPI).  Gold was also pressured by the continued recent uptrend in global bond yields (JGB -0.025% to -0.005%, German Bund from 0.068% to 0.102%, UK Gilt from 1.220% to 1.248%, US 10-year from 2.581% to 2.612% - fresh 1-month high), along with climbing global equities.  The NIKKEI was up 0.3%, the SCI gained 0.3%, European markets were flat to +0.2%, and S&P futures were +0.2%.  Stocks were lifted by the upbeat Chinese economic data, strong earnings reports from Morgan Stanley and Pepsi, along with a move up in oil (WTI to 64.61, API report showed a surprise large draw in US oil inventories).

 At 8:30 AM, a better than expected reading on the US Trade Balance (-$49.4B vs. exp. -$53.6B) lifted S&P futures (+12 to 2923).  The 10-year bond yield moved back up to its overnight high (2.612%) after it had ticked back to 2.598%, while the DX climbed to 97.01.  Gold - which had rebounded to $1277 – fell back to support at its overnight low of $1274.75. 

 US stocks sold off sharply after their open, coughing up nearly all of their overnight gains (S&P +1 to  2908).  The US 10-year bond yield retreated to 2.589%, while the DX pulled back to 96.92.  Gold edged up in response and recovered to $1276.25. 

 Later in the morning US stocks turned higher, despite misses on US Wholesale Inventories (0.2% vs. exp. 0.4%), and Wholesale Sales (0.3% vs. 0.5% last), with gains in the IT and Consumer Staples leading the bounce.  The 10-year yield edged up to 2.592%, and the DX rose to 97.04.  Gold was pressured down to $1273.75 where support ahead of yesterday’s $1273 low held. 

 Equities turned moderately lower into the afternoon (S&P -8 to 2988), with declines in the Health Care and Real Estate sectors.  A dip in oil (WTI to $63.78) from smaller than expected draws in US oil and gasoline inventories contributed to the move.  The 10-year yield slipped to 2.581%, but the DX remained firm between 97-97.04.  Gold stayed soft, but support at $1273 continued to hold.

 Open interest was surprisingly up (1.1k contracts), showing a net combination of new shorts and some bargain hunting longs offsetting the heavy long liquidation seen during yesterday’s decline.  Volume surged with 340k contracts trading.  

 Bulls were disappointed with gold’s failure to have a meaningful bounce today, despite a pullback (albeit modest) in the DX and equities.  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 last 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.

 Bears feel gold’s inability to bounce today – despite the dip in the DX and decline in equities - reflects that further selling pressure in gold remains.  They point to the gain in open interest showing that there was not as much long liquidation as initially perceived yesterday, furthering this claim of an abundance of spec longs still holding on.   While some bears took profits on the way down to $1273 yesterday, other bears feel the downside still 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, S&P got within 75bp from its all-time high this AM).  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 this afternoon’s Beige Book followed by reports tomorrow on Germany’s PPI, Eurozone PMIs, UK Retails Sales, US Retail Sales, Philly Fed Index, Jobless Claims, Markit PMI, Leading Indicators, Business Inventories, Baker Hughes Rig Count and comments from the Fed’s Bostic for near term guidance. 

In the news:

WGC – European ETPs reach record highs:   https://www.metalsdaily.com/uploads/european-etps-reach-record-highs.pdf

Gold output to reach record high this year – S&P:   https://www.miningweekly.com/article/gold-output-to-reach-record-high-this-year-report-2019-04-16

Is palladium’s bull market over – Heraeus: https://www.heraeus.com/media/media/hpm/doc_hpm/precious_metal_update/en_6/Appraisal_20190415.pdf

Inside  the US Mint at West Point: http://www.fox5ny.com/news/west-point-mint-gold-inside-look

YTD Performance


12/31/2018

4/17/2019

Change
% Change
Gold


1282.5

1274

-8.5

-0.663%

DX


96.06

97

0.94

0.979%

S&P


2505

2909

404

16.128%

JYN


109.63

111.99

2.36

2.153%

Euro


1.1466

1.13

-0.0166

-1.448%

US 10-year bond yield


2.69%

2.59%

-0.001

-3.611%

Oil (WTI)


45.45

64.02

18.57

40.858%

 

Resistance levels: 

$1275 – options

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

$1280 – 4/17 high

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

$1285 – up trendline from 12/28 $1274 low

$1289 – 4/16 high

$1290– 100-day moving average

$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

$1297 – 20-day moving average

$1300 – psychological level, options

$1301 – 4/10 low

$1301 – 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)

$1305 – 50-day moving average

$1306 – 4/9/high

*$1308 – down trendline from 2/20 $1347 high

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

*$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:

$1274 – 12/28 low

$1273 – double bottom - 4/16 and 4/17  lows

$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