Jim Pogoda, Senior Gold Trader, Gold Bullion International
APR 26, 2019
Gold firmed last night, climbing in a range of $1277.50 - $1283.20 and fading a modest decline in the torrid US dollar (DX from 98.24 – 98.08). The DX was pressured by a recovery in the euro from 22-month lows ($1.1124 - $1.1147) and the pound ($1.2888 - $1.2917) which overcame some softness in the yen (111.44 – 111.78, weaker Japanese Industrial Production, Employment, covering ahead of Golden Week). Gold also was lifted by an edge down in the US 10-year bond yield (2.54% - 2.52%), and mostly weaker global equities. The NIKKEI was down 0.2%, the SCI was off 1.2%, Eurozone shares ranged from -0.3% to +0.1% ,and S&P futures were off 0.1%. A pullback in oil (WTI from $65.25 - $63.92, technical selling under $65) weighed on stocks.
The headline GDP Report at 8:30 AM was a large beat – 3.2% vs. exp. 2.3%. The knee-jerk reaction from algorithmic trading took S&P futures higher (+7 to 2933), and sent the DX to 98.35, taking out yesterday’s 98.34 top to make a fresh 23-month high. Gold initially tumbled in response, reaching $1274.70.
However, upon a closer look, the upside beat was driven by net trade (exports jumped while imports contracted sharply, with inventories contributing to 170bp of the rise. Personal Consumption was lower than last quarter (1.2% vs. 2.5% last), and the GDP Price Index (0.9% vs. exp. 1.2%) and Core PCE were worse than expected (1.3% vs. exp. 1.6%). S&P futures reversed (-5 to 2921, hurt also by a further dip in oil -WTI to $63.22) and the US 10-year bond yield sank to 2.498% - focusing on the softer inflation components. The DX sank to 97.97 and gold popped higher. The yellow metal tripped buy stops over $1283 (last night’s and yesterday’s high) and $1286 (neckline from old head and shoulders pattern) to reach $1287.
After a weaker opening US stocks turned higher by late morning (S&P +6 to 2932), helped by a slightly better than expected report on the University of Michigan Consumer Sentiment (97.2 vs. exp. 97) and despite further losses in oil ($62.27). Gains in the Consumer Staples, Consumer Discretionary ,and Financials sectors led the comeback, which The 10-year yield edged back up to 2.505%, but the DX continued to soften (97.84). The greenback was pressured by short covering in the euro ($1.1111 - 1.1174) and the pound ($1.2875 - $1.2943). Gold pushed higher in response, and reached $1288.90 where resistance at $1289 (4/16 high) held.
In the afternoon, US stocks continued to firm, and the S&P reached a record high close (+14 to 2940) at the bell. The 10 year yield remained steady around 2.50%, while the DX recovered back over 98 to 98.05. Gold came off its highs, but was fairly resilient – trading narrowly between $1285.50 - $1287. It was $1286 bid at 4PM with a gain of $8.
Open interest was off 6.8k contracts, showing a combination of short covering from yesterday’s advance along with some options related close outs from yesterday’s options expiry. Volume was a little lower with 243k contracts trading. The CFTC’s Commitment of Traders Report as of 4/23 showed the large funds cutting 6.5k contracts of longs and adding 12.4k contracts of shorts. This was done during gold’s move down from $1277 to $1266, reflecting further long liquidation and the building of a larger gross short position. The Net Fund Long Position was slashed to just 37k contracts, while total gross shorts increased to 139k contracts. While some short covering has been seen in the past three sessions, the NFLP is probably up to only 50k contracts, and the gross short position is still well north of 125k contracts. This still sets up the gold market very well to recover 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 very many in danger here at still relatively lower levels).
Bulls cheered gold’s advance today – yet again in defiance of the US dollar notching another 23-month highs - and the S&P reaching a record high. Bulls are encouraged that gold has made three consecutive higher highs and higher lows in recovering $12 from Tuesday’s $1266 low. Bulls feel that the recent selling had been overdone ($45 the drop from $1311 on 4/10 to Tuesday’s $1266 low), and that gold has successfully consolidated in the high $1260’s and is on its way back from an oversold condition. 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 $1262). 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 today’s Commitment of Traders Report (as of 4/23) that showed the large funds cutting their net long position to just 37k contracts, and increasing their gross short position to 139k 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 retest the now double top at $1289 (today’s and 4/16’s high) and then challenge its 100-day moving average at $1293, above which they expect to trip some momentum buying.
Bears were again disappointed with gold’s ability to advance today, given the very strong US GDP, the DX remaining over 98, and with the S&P reaching a record high at 2940. However bears remain undeterred, and are using gold’s recent advance as a scale up opportunity to get short(er). While some bears took profits on the way down toward the $1271 and $1267 support levels earlier in the week, 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, better than expected Q1 earnings so far). Bears also feel that the strength in the US dollar has legs (another 23-month high today) – despite the surprise dovishness from the Fed at their last meeting - given the recent lousy Eurozone data (forced the German 10-year bund yield back into negative territory on Wednesday). 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 4/23 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 Monday on Eurozone Confidence, US Personal Spending, Personal Income, PCE Deflator, Dallas Fed Manufacturing Activity Index, and comments from the BOE’s Carney for near term guidance.
In the news:
China gold output slipping – Australia and Russia catching up?: https://www.sharpspixley.com/articles/lawrie-williams-china-gold-output-slipping-australia-and-russia-catching-up-_292453.html
Degussa – sound investment rationale for gold: https://www.degussa-goldhandel.de/wp-content/uploads/2019/04/degussa-marktreport-engl-25-04-2019.pdf
Asia gold – demand sparkles in India ahead of festival, steady elsewhere: https://in.reuters.com/article/asia-gold-demand/asia-gold-demand-sparkles-in-india-ahead-of-festival-steady-elsewhere-idINKCN1S219R?il=0
Russia’s thirst for gold is down to diversification: https://www.cnbc.com/2019/04/26/russias-thirst-for-gold-is-down-to-diversification-central-bank-governor-says.html
|US 10-year bond yield|
$1286 – up trendline from 12/28 $1274 low
$1287 -20 day moving average
$1289 – 4/16 high
$1291 – 4/15 high
$1293– 100-day moving average
$1293-95 –quadruple top 4/2, 4/3, 4/4, and 4/5 high
$1294 – 40-day moving average
$1296 – 4/12 high
$1300 – psychological level, options
$1301 – 4/10 low
$1301 – 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)
*$1303 – down trendline from 2/20 $1347 high
$1306 – 4/9/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
$1283 – 4/25 high
$1278-80 – quadruple top - 4/17, 4/18, 4/22, and 4/24 highs
$1275 – options
$1273 – quadruple bottom - 4/16, 4/17, 4/22, and 4/25 lows
$1271 – 4/18 low
$1269 -4/24 low
$1265-67 – quadruple bottom - 12/25, 12/26, 12/27, and 4/23 lows
*$1263 – 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
*$1252 – 200-day moving average
$1250 – options
$1242-43 – double bottom – 12/19 and 12/20 lows