Jim Pogoda, Senior Gold Trader, Gold Bullion International
APR 22, 2019
Gold traded modestly higher overnight, but was held to a narrow range of $1275.50- $1279.95. It was lifted on some safe-haven demand on rising tensions between the US and Iran, but resistance between $1277-80 held (double top - 4/17 and 4/18 highs, former support from 7 bottoms 12/28, 1/4, 1/21, 1/22, 1/23, 1/24 and 1/25 lows). Reports surfaced last night that the US was expected to announce today the elimination of waivers that it had granted to some buyers of Iran’s oil, while the Iranians threatened to shut off the Strait of Hormuz (WTI oil spiked to $65.96 – 6 month high). S&P futures slumped (2914 – 2899), which gave gold a boost to its $1279.95 high. A slight drop in the US dollar (DX from 97.40 – 97.31) and mostly softer global equities were gold supportive with the NIKKEI up 0.14% ,the SCI was off 1.7%, and European markets were closed observing Easter Monday.
Around 9AM, US Secretary of State Pompeo announced the elimination of waivers to Iran oil sanctions, but the Saudis followed up with a statement that they will work with fellow producers to ensure adequate supplies to the marketplace while Trump tweeted that OPEC and others will more than make up the oil flow difference. Oil came off its highs (WTI to $65.27), and S&P futures bounced to 2908. Gold retreated, but found support at $1275.
At 10AM, a weaker than expected report on US Existing Home Sales (5.21M vs. exp. 5.3M) took US stocks lower (S&P -3 to 2901). The Real Estate, Materials, and Financials sectors lead the decline. The US 10-year bond yield slipped from 2.587% to 2.581%, and the DX retreated to 97.29. Gold rebounded in response, and traded up to $1276.25.
US stocks recovered into mid-day, (S&P +2 to 2907), led by strength in the Energy, Communication Services and Consumer Staples sectors (Kimberly-Clark and Halliburton with stronger earnings reports). A rebound in oil (WTI back to prior $65.96 high) contributed to the move. The US 10-year yield bounced to 2.587%, but the DX edged lower to 97.27 – still under pressure from the weak Existing Home Sales report. Gold - caught in the cross currents - probed lower and reached $1273.75.
In the afternoon, US stocks remained steady (S&P finished +3 at 2908). The US 10-year bond yield hovered around 2.585%, but the DX ticked down to 97.26. Gold edged up to $1276, before ticking down to $1275 bid at 4PM – unchanged.
Open interest was off 2.3k contracts, showing a combination of early long liquidation down to $1271 along with some subsequent short covering from Thursday. Volume was slightly higher with 235k contracts trading. The CFTC’s Commitment of Traders Report as of 4/16 showed the large funds cutting 16.2k contracts of longs and adding a whopping 32.8k contracts of shorts. This was done during gold’s move down from $1311 - $1273, which showed a smaller amount of long liquidation and a heavier amount of new shorts than anticipated. The Net Fund Long Position was slashed to just 56k contracts, while total gross shorts ballooned to 127k 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 (although not many in danger here at lower levels).
Bulls were disappointed with gold’s failure to take out initial resistance at $1277-80 (also failed there last Wed), and its inability to advance despite a pullback in the US dollar. Other bulls feel that the recent selling has been overdone ($40 in last 6 sessions) and is approaching oversold (14-day RSI last 4 sessions between 35-36. 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 volatility in equity markets along with the recent dovish pivot from the Fed 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 4/16) that showed the large funds cutting their net long position to just 56k contracts, and increasing their gross short position to 127k 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 $1270’s and then mount a re-test of initial resistance at $1277-80.
Some bears are concerned about the lack of follow through selling (no chart support until $1265-67), but others will minimize the price action of the past few sessions due to pre and post holiday muted activity. Bears are encouraged that gold has failed to have a meaningful bounce despite making lower highs 6 of the past 7 sessions while dropping $40 from $1311 - $1271. While some bears took profits on the way down to $1271 Thursday, 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 $1261 – the up trendline from 8/16/18 $1160 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 Retail Sales and Machine Tool Orders, Eurozone Consumer Confidence, US House Price Index, Richmond Fed Manufacturing Index and New Home Sales for near term direction.
In the news:
Russia keeps up the gold buying pace: https://www.sharpspixley.com/articles/lawrie-williams-russia-keeps-up-the-gold-buying-pace_292238.html
US Mint bullion sales slow from prior week: http://www.coinnews.net/2019/04/18/gold-and-silver-log-fourth-weekly-decline/
$1277-80 - 7 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, 1/24 and 1/25 lows
$1278-80 – triple top - 4/17, 4/18, and 4/22 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
$1291– 100-day moving average
$1290 -91 double bottom – 4/11 and 4/12 lows
$1293 – 20-day moving average
$1293-95 –quadruple top 4/2, 4/3, 4/4, and 4/5 high
$1296 – 4/12 high
$1303 – 50-day moving average
$1300 – psychological level, options
$1299 – 40-day moving average
$1301 – 4/10 low
$1303 – 50-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
*$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
*$1350 – down trendline from 8/25/13 $1433 high
$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
$1273 – triple bottom - 4/16, 4/17, and 4/22 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