Gold Traders’ Report - April 5, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
APR 5, 2019

Gold softened last night in a range of $1287 - $1293, giving up about half of its recovery rally from $1281 yesterday.  It slid against a move up in the US 10-year bond yield (2.538% - 2-week high) and continued strength in global equities:  NIKKEI up 0.4%, SCI closed, European markets ranged from flat to +0.2%, and S&P futures were +0.2%.  Equities were lifted by continued optimism surrounding the US-China trade talks (China’s Liu He said new consensus had been reached by both sides, Xi says progress was being made, adds to Trump’s upbeat assessment late yesterday). The US dollar was fairly steady between 97.19 – 97.33 and gold neutral.  The greenback softened modestly early during Asian and early European time, as some yen weakness (111.58 – 111.80, US-China trade optimism denting need for safe-haven yen) was overcome by early strength in the pound ($1.3121, perception of May being able to work with Labour to deliver a soft Brexit), and the euro ($1.1217 - $1.1236, stronger German Industrial Production).  Later during European time, the DX rebounded to its high against a decline in sterling ($1.3056) as May’s proposal for a short extension until 6/30 was countered by a year-long extension offered by the EC’s Tusk.

 The much anticipated US Payroll Report at 8:30 AM was a mixed bag.  While Non-Farm Payrolls beat expectations (196k vs. exp. 178k), and there were modest positive revisions (+14k) to the last month’s reports, Average Hourly Earnings (0.1% vs. exp. 0.2%)  and the Labor Participation Rate (63% vs. exp. 63.2%) were lower than expected.  US equities cheered the report (S&P futures +9 to 2892), easing fears of an economic slowdown (last month’s report showed a paltry 20k job gain), but yet didn’t stoke inflation fears with the modest gain in Average Hourly Earnings – leaving perceptions of a “goldilocks” economic picture.  The US 10-year bond yield dipped however(2.51%)  - focusing more on the softer wage and participation components of the report.  The DX  gyrated wildly between 97.16 – 97.40, but then took a firmer tone (97.35-40).  Gold likewise fluctuated between $1284.50 - $1292, but then stabilized around $1290-91.

 US stocks continued to firm into mid-day (S&P +13 to 2892, 5-month high), with comments from Trump (calls for the Fed to cut interest rates and resume quantitative easing, cited progress with the US-China trade talks, and favored auto tariffs vs. shutting the US-Mexico border), comments from White House Economic Advisor (Fed went too far in hiking rates, reiterates his prior call for rate cuts now) and a pop in oil (WTI to $62.77) aiding the rally.  Gains in the Energy, Health Care and Consumer Discretionary sectors led the advance.  The 10-year yield slid further to 2.494%, still reacting to the slower wage growth, but the DX clawed higher(97.47), helped by further weakness in the pound ($1.2987) and the euro ($1.1210) from some opposition to May’s proposed extension from the Dutch, Germans and French.  Gold, was caught in the cross currents and probed higher, but was capped at the overnight high and quadruple top $1293-95. 

 In the afternoon, US equities forged ahead to fresh highs (S&P touched 2893, finished +13 to 2892), helped by oil surging to $63.25 (fresh 5-month high).  The 10-year yield traded either side of 2.50%, while the DX remained steady around 97.40.  Gold traded narrowly between $1291-92 and was $1292 bid at 4PM with a decline of $1.

 Open interest was off 3.6k contracts, showing a combination of early long liquidation along with subsequent short covering from yesterday’s reversal.  Volume surged with 278k contracts trading, giving more credence to the bullish technical argument of the near key reversal day yesterday.  The CFTC’s Commitment of Traders Report as of 4/2 showed the large funds cutting 21.1k contracts of longs and adding 4.2k contracts of shorts to reduce their net long position to 94k contracts.  This was done on gold’s move down from $1319 to $1285 last week, reflecting a good chunk of long liquidation along with a significant amount of new shorts during the pullback.  Gross shorts increased to 99k contracts and remain relatively elevated.   This still sets up the goldmarket 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. 

 Some bulls were disappointed with today’s $1 decline, but others were relieved that given the strength in stocks and the firmer US dollar gold didn’t retest the confluence of support between $1277-84 (including head and shoulders neckline, 100-day moving average).  Bulls were encouraged from gold’s near key reversal day (rally back from $1281 low to nearly take out Wednesday’s $1294.60 high) yesterday and are pleased with the amount and depth of the bargain hunting buying seen.  Bulls feel the selloff from $1325 has been overdone and have used the recent 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 $1284 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 (including recent dovish comments from Trump, Kudlow, and Fed nominee Moore), which should help drive gold higher.    Bulls also point to today’s Commitment of Traders Report (as of 4/2) that still has the large funds with a significant gross short position (increased to 99k 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 breach of $1293-95 (quadruple top 4/2, 4/3, 4/4, and 4/5 highs) to lead to a test of the old support level at $1300 - $1303.  

 Bears will take today’s $1 decline, but given the up moves in the DX and stocks, some were looking for a retest of the confluence of support between $1284 down to $1277.  Bears remain comfortable with gold’s recent price action on its move down from $1325, having made lower highs in 8 of the last 9 sessions, and lower lows in 6 of the past 8.  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 on gold’s dip toward $1281 yesterday, 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 15 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 at their last meeting - given the recent lousy Eurozone data that forced the German 10-year bund yield back into negative territory 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 and will continue to pressure gold lower.  Bears expect long liquidation to resume, and look for a retest 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 – 5 bottoms 3/4, 3/5, 3/6, 3/7, and 4/4 lows,  $1284 – up trendline from 12/28 $1274 low, $1284– 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 reports Monday on Japan’s Trade Balance, Consumer Confidence, and Economy Watchers Survey, Germany’s Trade Balance, Eurozone Sentix Investor Confidence, US Factory Orders and Durable Goods for near term direction. 

 In the news:

NFP quick analysis:   https://www.fxstreet.com/analysis/nfp-quick-analysis-back-to-normal-mean-back-to-usd-strength-201904051302

 Trump’s Fed picks have fond memories of the gold standard:   https://www.bloomberg.com/news/articles/2019-04-05/stephen-moore-and-herman-cain-are-warm-toward-the-gold-standard

 Italy’s ruling populists push ahead to seize central bank gold reserves:   https://www.forexlive.com/news/!/italys-ruling-populists-push-ahead-to-seize-central-bank-gold-reserves-20190404

 Brexit:  UK askd EU for further extension until 30 June:   https://www.bbc.com/news/uk-politics-47825841

Resistance levels: 

$1293-95 –quadruple top 4/2, 4/3, 4/4, and 4/5 highs

$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

$1307 – 40-day moving average

$1308 – 3/27 low

$1308 – 50-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

$1316 – down trendline from 2/20 $1347 high

$1315 – 3/22 high

$1317 – 3/20 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 – triple bottom 3/8, 4/2, and 4/5  lows

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

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

*$1284– 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