Gold Traders’ Report - April 3, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
APR 3, 2019

Gold was quietly steady last night, trading either side of unchanged in a narrow range of $1290.25 - $1294.60.  The yellow metal dipped to its $1290.25 low during early Asian hours, as the US dollar retained its firm tone (DX holds 97.30), helped by some weakness in the yen (111.28 – 111.58, anti-risk yen offered), a move up in the US 10-year bond yield (2.522% - 1-week high), and continued strength in global equities.  The NIKKEI was up 1.0%, the SCI rose 1.2%, European markets were up from 0.1% to 1.2%, and S&P futures were + 0.5% with optimism over the progress of the US –China trade negotiations (FT reports most outstanding issues resolved, Liu He in Washington today to resume talks) and a strong reading on China’s Caixin Services PMI fueling the advance.  However, gold rebounded to its $1294.60 high during later Asian and European time – albeit in a choppy fashion- as the US dollar pulled back below 97 to reach 96.96.  The greenback was pressured by strength in the pound ($1.3121 - $1.3185 hopes for a Brexit resolution as PM May meets with Labour’s Corbyn today, shrugs off weak Services PMI), and the euro ($1.1200 - $1.1255, German 10-year bund yield turns positive off stronger German and Eurozone PMI data).

 At 8:15 AM, a weaker reading on US ADP Employment Change (129k vs. exp. 180k) knocked S&P futures off their highs (2886 to 2882), and tugged the US 10-year yield down to 2.51%.  The DX, which had a modest bounce to 97.06 fell back to 97, and gold – which had slipped to $1291 – bounced to $1294.

 US stocks continued to pare gains through their open (S&P +8 to 2875), while the 10-year yield hovered around 2.515%. The DX, however, turned higher 97.17, boosted by losses in the pound ($1.3121) and the euro ($1.1226) - amid reports that the EU will not accept another short extension to Brexit unless British MPs approve the withdrawal agreement by 4/11.  Gold softened and took out its overnight low to reach $1288.40. 

 Later in the morning, a worse than expected reading on US ISM Services (56.1 vs. exp. 58) outweighed a stronger report on US Markit Services PMI (55.3 vs. exp. 54.8), and pushed US stocks lower (S&P +4 to 2871).  The 10-year yield slid to 2.506%, and the DX retreated to 97.04.  Gold climbed in response, and clawed back to $1291.25. 

 Toward mid-day, US stocks took out their earlier highs (S&P +18 to 2885) despite a tumble in oil (WTI to $62.04) from a larger than expected build in US Oil Inventories.  All S&P sectors turned positive, with gains in IT and Materials leading the advance.  The move was aided by upbeat comments from White House Economic Advisor Kudlow that the US –China trade talks made good headway last week, are progressing, and hope to get closer to a deal this week.  The 10-year yield moved up to 2.519%, but the DX retreated back to 97.  The dollar was softened by a recovery in the pound ( $1.3185) and the euro ($1.1244) as initial reports of May-Corbyn meeting confirmed it had gone “very well”.  Gold was caught in the cross currents, but traded up to $1292.

 Into the afternoon, US equities trimmed their gains (S&P +4 to 2871) with losses in the Energy and Consumer Staples sectors weighing.  The 10-year yield ticked down to 2.51%, but the DX edged up to 97.06.  Gold remained steady, and held between $1290-91.  

 Open interest was off 2.6k contracts, showing a combination of early long liquidation to  the $1285 low along with some subsequent short covering from yesterday.  Volume was lower with 206k contracts trading. 

 While some bulls were looking for a stronger rebound given the pullback in the US dollar, other bulls were encouraged that gold found support in front of $1288 – protecting the head and shoulders pattern neckline support at $1284 and confluence of support just below that level.  They were especially pleased that it held firm despite the US 10-year bond yield moving back above 2.50%, and continued strong gains in equities.  Bulls feel the selloff from $1325 has been overdone and have used the dips to get long (er) at more attractive levels.  Bulls also maintain that gold’s correction down from $1347 had been overdone, and feel that it will consolidate again in front of the confluence of support levels from $1283 down to $1277.  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.  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, which should help drive gold higher.    Bulls also point to last Friday’s Commitment of Traders Report (as of 3/26) that still has the large funds with a significant gross short position (95k 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 a consolidation ahead of $1277-83, and then for a quick rebound to the old support at $1300 - $1303.  

 Bears were plagued by perceived progress in Brexit negotiations that pushed the DX down – despite another day of strong gains in equities and the 10-year yield climbing back above the key 2.5% level.  Though gold failed to add to its streak of 5 consecutive lower lows, and 6 consecutive lower highs, bears remain comfortable with its recent price action on its move down from $1325.  Bears believe gold’s downside has legs, and maintain that its recent bounce from $1281 was just a modest uptick within the early stages of a more significant downside correction.  Though some bears took some profits toward key support points of $1291, $1287, and $1285 over the last few sessions, other bears still remain comfortable selling into strength and will continue to use rallies as entry points for getting short(er).  They maintain 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 13 weeks to resume (encouraged by golden cross in the S&P on Monday – 50 day moving average crossed 200-day moving average).  Bears also feel that the strength in the US dollar has legs – despite the surprise dovishness from the Fed the week before - given the recent lousy Eurozone data that forced the German 10-year bund yield back into the red last week.  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 (8 of last 10 sessions of higher lows, and higher highs) and will continue to pressure gold lower.  Bears expect further long liquidation to resume, and look for a breach of initial support at $1285 (double bottom 3/8 and 4/2 lows) to lead to a test of the confluence of technical support just below:  $1281-84 – quadruple bottom 3/4, 3/5, 3/6, and 3/7 lows,  $1284 – up trendline from 12/28 $1274 low, $1283– 100-day moving average, $1277-80 - 7 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, 1/24 and 1/25 lows.  Bears feel that a breach of these levels should trip more significant long liquidation that will open up a move into the mid $1260’s. 

 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), oil prices, and will turn to comments later this evening from the Fed’s Kashkari followed by reports tomorrow on German Factory Orders and Construction PMI, ECB’s Acccount of March Meeting, US Challenger Job Cuts, Jobless Claims and comments tomorrow from the Fed’s Mester for near term direction.  

 In the news: 

Gold has done quite will says BlackRock’s Holl: https://www.bloomberg.com/news/videos/2019-04-02/gold-has-done-quite-well-says-blackrock-s-holl-video

YTD Performance


12/31/2018

4/3/2019

Change
% Change
Gold


1282.5

1290

7.5

0.585%

DX


96.06

97.05

0.99

1.031%

S&P


2505

2872

367

14.651%

JYN


109.63

111.46

1.83

1.669%

Euro


1.1466

1.1243

-0.0223

-1.945%

US 10-year bond yield


2.686

2.513

-0.173

-6.441%

Oil (WTI)


45.45

62.34

16.89

37.162%

 

Resistance levels: 

$1291-94 – quadruple bottom -  3/11, 3/12, 3/14, and 3/15 lows

$1295 – 4/3 high

$1297 – 4/1 high

$1298-99 – double bottom - 3/18 and 3/20 lows

$1300 – 3/29 high

$1300 – psychological level, options

$1302 – 20-day moving average

$1303 – 3/21 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)

$1306-7 – double top - 3/15 and 3/18 highs

$1307 – 3/22 low

$1308 – 3/27 low

$1308 – 50-day moving average

$1308 – 40-day moving average

$1311 – 3/25 low

$1312 – 3/28 high

$1313 – up trendline from 3/7 $1281 low

$1314 – 50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low

$1315 – 3/22 high

$1317 – 3/20 high

$1318 – down trendline from 2/20 $1347 high

$1319-20 – double top - 3/21 and 3/27  highs

$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

$1336 – up channel line from 3/4 $1297 high

$1336 – 4/23/18 high

$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:

$1287-89 – quadruple bottom 3/28, 3/29, 4/1 and 4/3 lows

$1285 – double bottom 3/8 and 4/2 lows

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

*$1284 – up trendline from 12/28 $1274 low

*$1283– 100-day moving average

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

$1275 – options

$1274 – 12/28 low

$1265-67 – 12/25, 12/26 ,and 12/27  lows

$1259 – 12/24 low

$1254 – 12/21 low

$1250 – options

$1249 – 200-day moving average