Jim Pogoda, Senior Gold Trader, Gold Bullion International
APR 18, 2019
Gold remained choppy overnight, trading in a range of $1270.90 - $1277.70. It moved to its low during Asian and early European time, taking out support at $1273 (double bottom, last 2 sessions lows) against a modest uptick in the US dollar (DX from 97 to 97.05). However, during European time, weaker than expected German and Eurozone Manufacturing PMI data crushed the euro ($1.1304 - $1.1264), and the DX spiked to 97.21. Gold rallied, however, as it failed to attract significant follow through selling earlier, and by the plunge in bond yields (German bund from 0.085% to 0.029%, US 10-year from 2.59% to 2.554%) and equities (S&P futures -10 to 2890). The yellow metal tripped some light buy stops over $1275 to reach its $1277.70 high. However, ahead of the NY open, further euro weakness ($1.1243) sent the DX higher (97.34), and pushed gold back to $1275.
At 8:30 AM, a much stronger than expected readings on US Retail Sales (1.6% vs. exp. 0.8%), and Jobless Claims (192k vs. exp. 207k, lowest in 50 yrs), overcame a miss in the Philly Fed Index (8.5 vs. exp. 11). S&P futures rallied (2908), the 10-year yield bounced to 2.576%, and the DX surged to 97.42. Gold softened in response, but was again fairly resilient – finding support at $1273.
US stocks gave up their gains shortly after their open (S&P -9 to 2890), and shrugged off solid reports on US Leading Indicators (0.4% as expected),and Business Inventories (0.3% as expected, revised last month’s reading higher). Losses in the beleaguered Health Care sector along with the Energy sector lead decliners, with a dip in oil (WTI from $64.13 - $63.50) contributing to the move. The 10-year yield slipped to 2.551% while the DX retreated to 97.28. Gold rebounded to $1276.50, but was unable to test the overnight high.
Equities reversed and rallied into the early afternoon (S&P + 7 to 2907), with the rebound led by the Industrials sector. A rebound in oil (WTI to $64.06), a somewhat benign Mueller report along with successful IPOs on Pinterest and Zoom aided the move. The 10-year bond yield edged up to 2.567%, while the DX rose to 97.49 (2-week high). The greenback was further bolstered by continued weakness in the euro ($1.1225) off of the earlier soft Eurozone PMI data. Gold was pressured lower, but decent dip buying limited the decline to $1272.50.
Later in the afternoon, US stocks remained firm (S&P finished +5 to 2905) while the 10-year yield hovered around 2.56%. The DX was steady around 97.45, and gold traded narrowly between $1273.50- $1275. Gold was $1275 bid at 4PM with a gain of $1.
Open interest was off 2.2k contracts, showing a net of long liquidation from yesterday’s decline. Volume was much lower with 231k contracts trading.
Bulls were encouraged that gold was able to bounce off of $1271 overnight and finish on the plus side despite a significant rally in the US dollar (0.50%) and another advance in US stocks. Bulls feel that the recent selling has been overdone ($40 in last 6 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 $1261). 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 were disappointed with gold’s price action from early this morning in that 1) it failed to trip more significant selling under the $1273 double bottom, and 2) that it initially advanced along with a firming dollar off of the weaker Eurozone PMI data. However, other bears will minimize this activity as a lack of conviction to putting on significant additional short positions ahead of a long holiday weekend. While some bears took profits on the way down to $1271 today, 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 only about 1% from its all-time). 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 (along with today’s weak German and Eurozone PMI data). 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 CPI and US Housing Starts and Building Permits, followed by reports Monday on Japan’s Convenience Store Sales and US Chicago Fed National Activity Index and Existing Home Sales, for near term direction.
In the news:
China premiums bounce to 2-year highs as prices dip, yuan gains: https://in.reuters.com/article/asia-gold-demand/asia-gold-china-premiums-bounce-to-two-year-highs-as-prices-dip-yuan-gains-idINKCN1RU1IP?rpc=401&
Newmont and Goldcorp successfully create world’s leading gold company: https://www.businesswire.com/news/home/20190417006057/en/Newmont-Goldcorp-Successfully-Create-World%E2%80%99s-Leading-Gold
WGC – video Q&A with Natalie Dempster: https://www.centralbanking.com/awards/4150781/video-qa-natalie-dempster-world-gold-council
US will not prosecute Miami gold refiner after money laundering probe: https://uk.reuters.com/article/gold-rmc-moneylaundering/u-s-will-not-prosecute-miami-gold-refinery-after-money-laundering-probe-idUKL5N2203WJ?rpc=401&
HSBC’s Bloom says dollar is best of bad bunch: https://www.bloomberg.com/news/videos/2019-04-17/hsbc-s-bloom-says-dollar-is-best-of-bad-bunch-video
$1277-80 - 7 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, 1/24 and 1/25 lows
$1278-80 – double top - 4/17 and 4/18 highs
$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
$1295 – 20-day moving average
$1296 – 4/12 high
$1300 – psychological level, options
$1300 – 40-day moving average
$1301 – 4/10 low
$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)
$1304 – 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
$1275 – options
$1274 – 12/28 low
$1273 – double bottom - 4/16 and 4/17 lows
$1271 – 4/18 low
$1265-67 – 12/25, 12/26 ,and 12/27 lows
$1261 – up trendline from 8/16/18 $1160 low
$1259 – 12/24 low
$1254 – 12/21 low
$1253 – 50% retracement of up move from 8/16/18 $1160 low to 2/20 $1347 high
$1251 – 200-day moving average
$1250 – options