Gold Traders’ Report - April 23, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
APR 23, 2019

Gold edged lower last night, trading in a relatively tight range of $1271.50 - $1276.65.  The yellow metal ticked up to its $1276.65 high during early Asian hours as the US 10-year bond yield slid from 2.592% to 2.576% and US dollar remained near its lows from the prior session (DX 97.27).  The DX was held in check from some early strength in the yen (111.96 – 111.66, risk off flows).  During European time, however, gold broke through support at $1273 (triple bottom - 4/16, 4/17, and 4/22  lows) to reach $1271.50 where support ahead of $1271 (4/18 low) held.  Gold was pressured by an advance in the dollar (DX to 97.40, matching yesterday’s high) which was bolstered from a rebound in the yen (111.94, BOJ’s Maeda reiterated the bank was ready to supply further easing), and weakness in euro ($1.1260 - $1.1241, widening US – German bond yield spread).  Global equities were mixed with the NIKKEI up 0.2%, the SCI was off 0.5%, European markets ranged from -0.2% to +0.3%, and S&P futures were flat.  A move up in oil (WTI to $66.19, fresh 6-month high, yesterday’s announcement that US won’t extend Iran sanction waivers still resonating) was supportive of equities. 

 Ahead of and through the NY open, S&P futures rallied on the strength of stronger earnings reports from Twitter, Lockheed Martin, United Technology, Coke, and Verizon.  The US 10-year bond yield bounced to 2.592% - matching yesterday’s high.  The DX broke through 97.40, and tripped some buys stops over the 97.50 area to reach 97.71 – a 6 week high.  The dollar was helped by a tumble in the pound ($1.3018 - $1.2944, fresh reports some Conservative MPs are plotting to oust PM May), and the euro ($1.1204, support at $1.1225 broken).  Gold sank through support at $1271 (reports of 11k contracts liquidated) to reach $1267 where support from the triple bottom at $1265-67 held (12/25, 12/26 ,and 12/27  lows). 

 At 10 AM, a better than expected reading on US New Home Sales (692k vs. exp. 647k, lower mortgage rates) overshadowed a miss on the Richmond Fed Manufacturing Index (3 vs. exp. 10) lifted US stocks further into the late morning (S&P +14 to 2921, 6-month high).  Strong gains in the beleaguered Health Care sector along with the Consumer Discretionary, and Real Estate sectors led the advance, and a further gain in oil (WTI to $66.57, Saudis said to be cautious on increasing supply) was supportive of the move.  However, the 10-year bond yield declined to 2.565% (reports of heavy Asian buying).  The DX continued to climb though, and hit 97.78 – a 22-month high – helped by further declines in the euro ($1.1191, 3- week low, weaker than expected Eurozone Consumer Confidence Report -  also at 10AM), and the pound ($1.2927).  Gold - after a bounce to $1270 - was driven to $1266.35 (4-month low) where once again support at $1265-67 held. 

 Into the afternoon, US stocks continued to surge (S&P +28 to 2936, 4 points away from all-time high), while the US 10-year yield was choppy and either side of 2.57%.  The DX retreated to 97.62, as the euro had a modest bounce back over $1.12 to reach $1.1216.  Gold rebounded from some bargain hunting buying and traded up to $1273. 

 Later in the afternoon, equities remained firm (S&P finished +26 to 2933 – record close), while the 10-year yield remained steady around 2.57%.  The DX hovered either side of 97.60, and gold was stable between $1270.50 - $1272.  Gold was $1272 bid at 4PM with a loss of $3. 

 Open interest was up 2.4k contracts, showing a net of new longs from yesterday’s early advance.  Volume was much lighter with the Easter Monday holiday limiting trading to just 138k contracts.  

 Bulls were disappointed with today’s $3 decline, and gold’s 7th lower high in the past 8 sessions.  However, other bulls were relieved that gold’s decline was as limited as it was, given the strong rally in US stocks (S&P got within 4 points of its all-time high) and the dollar (DX to  22-month high).  They’re encouraged with the dip buying seen that took the market back over $1271 – the former support level which it collapsed under this morning.  Bulls feel that the recent selling has been overdone ($45 in last 8 sessions) and is approaching oversold (14-day RSI =33).  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 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.

 Bears cheered today’s decline, but were a bit concerned with gold’s ability to rally back to above prior support at $1271 – especially given the magnitude of the rally in the DX and equities.  Bears are encouraged that gold has failed to have a meaningful bounce while making lower highs 7 of the past 8 sessions while dropping $45 from $1311 - $1266.  While some bears took profits on the way down toward the $1271 and $1267 support levels 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 got within 4 points from its all-time today).  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 (and today’s weak Eurozone Consumer Confidence reading) 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 look for a retest of initial support at $1265-67 (quadruple bottom 12/25, 12/26, 12/27, and today’s  low) followed by $1262 – the up trendline from 8/16/18 $1160 low.  Below this key trendline, bears expect to trip heavier long liquidation that will bring the low-mid $1250’s into play, and a test of the 200-day moving average at $1251. 

 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 All Industry Activity Index and Leading Index, Germany’s Import Prices and  IFO, ECB’s Economic Bulletin,  US MBA Mortgage Applications and Oil Inventories for near term guidance. 

 In the news:  

Gold plunges toward key technical level after $1.5B notional dump:   https://www.zerohedge.com/news/2019-04-23/gold-plunges-towards-key-technical-level-after-15-billion-notional-dump

 Standard Chartered – gold to test 2018 highs:   https://www.cnbc.com/2019/04/19/gold-will-break-out-of-slump-and-test-2018-highs-standard-chartered.html

 Gold speculators sharply pared bullish bets:   https://www.investing.com/analysis/gold-speculators-sharply-pared-their-bullish-bets-to-lowest-in-19-weeks-200408871

YTD Performance


12/31/2018

4/23/2019

Change
% Change
Gold


1282.5

1272

-10.5

-0.819%

DX


96.06

97.6

1.54

1.603%

S&P


2505

2933

428

17.086%

JYN


109.63

111.83

2.2

2.007%

Euro


1.1466

1.1223

-0.0243

-2.119%

US 10-year bond yield


2.69%

2.57%

-0.0012

-4.319%

Oil (WTI)


45.45

66.27

20.82

45.809%

 

Resistance levels: 

$1273 – triple bottom - 4/16, 4/17, and 4/22  lows

$1275 – options

$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

$1297 – 40-day moving average

$1300 – psychological level, options

$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

*$1305 – 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

 Support levels:

$1271 – 4/18 low

$1265-67 – quadruple bottom - 12/25, 12/26, 12/27, and 4/23 lows

*$1262 – 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

$1242-43 – double bottom – 12/19 and 12/20 lows