Gold Traders’ Report - April 9, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
APR 9, 2019

Gold strengthened again overnight, rising in a range of $1296.65 - $1303.  It tripped some buy stops over $1300 to reach its $1303 high, where it was capped in front of yesterday’s $1304 top and old resistance level of $1303-05.  Gold’s up move was fueled by a continued pullback in the US dollar (DX from 97.09 – 96.87 – 2-week low), which was pressured by strength in the yen (111.58 – 111.22, safe haven), the euro ($1.1254 - $1.1280, covering ahead of ECB meeting tomorrow), and the pound ($1.3053 - $1.3121 , report that Merkel was willing to put a 5-year limit on the Irish backstop proposal).  The greenback also was under pressure from strength in commodity linked currencies –including the Aussie and Canadian dollars - from the surge in oil prices to fresh 5-months highs (WTI to $64.76).  Global equities were mixed, but gold did get a boost from softening in S&P futures as Trump’s administration announced it would begin the process for retaliation against EU subsidies to Airbus.  The NIKKEI was up 0.2%, SCI shed 0.2%, European markets ranged from -0.1% to +0.1%, and S&P futures were off 0.1%. 

 Around the NY open, a report from the IMF cutting global growth again from 3.5% to 3.3% (higher trade policy uncertainty and concerns of escalation and retaliation weigh, and could dent financial market sentiment and further dampen growth) took S&P futures further down (-18 to 2880), and knocked the US 10-year bond yield from 2.524% to 2.485%.  The DX ticked down to 96.86, and gold rallied. The yellow metal took out last night’s high and the key $1303-05 level to reach $1306.20 – a fresh 2-week high – with a combination of short covering and some new longs seen. 

 US stocks rebounded modestly into mid-day after a softer open (S&P -8 to 2887), led by gains in the Communications Services sector, and shrugged off a worse than expected reading on US JOLTS Job Openings (7.087M vs. exp. 7.55M), and a plunge in oil (WTI to $63.67, Putin says Russia is not a supporter of uncontrollable price rises, no decision on continuing output cuts).  The US 10-year yield recovered to 2.501%, and the DX bounced back to 96.99.  The greenback was aided by softness in the pound ($1.3040, Labour’s McDonnel said Government hasn’t shown changes in language on customs union).  Gold came off its high, and fell to $1303.  However, some bargain hunting bids quickly emerged to lift it back to the $1304-05 level by late morning.  

Into the afternoon, US equities turned back lower (S&P -15 to 2880), with the Industrials, Energy, Consumer Discretionary and Financials sectors lagging.  The 10-year yield hovered around 2.50%, but the DX rose to 97.04, boosted by a further pullback in sterling ($1.3029) and a decline in the euro ($1.1263).  Gold was caught in the cross currents, and traded narrowly between $1304 - $1305.50. 

 Later in the afternoon, US stocks made fresh low (S&P finished down 17 to 2878, breaking 8 session streak of advances) while the 10-year bond yield remained steady around 2.50%.  The DX slipped below 97 to 96.98, pressed by a bounce in sterling ($1.3062, May wins vote to extend Article 50 until 6/30, EU’s Tusk urges much longer extension).  Gold failed to advance, however, and edged lower to $1303.25.  It was $1304 bid at 4PM with a gain of $6.

 Open interest was up 3.7k contracts, reflecting a net of new longs from yesterday’s $7 advance.  Volume was lower with 214k contracts trading. 

 Bulls cheered today’s advance, and are impressed with gold’s $25 bounce since its near key reversal day last Thursday were it flirted with breaching a confluence of support between $1277-84 (including the head and shoulders neckline and 100-day moving average).  It has put in 3 consecutive higher lows and has made 2 straight higher highs and has drawn within $8 of breaching the down trendline from the 2/20 $1347 top at $1314.  Bulls maintain 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.  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 (will look for supporting dovishness from the minutes tomorrow)  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 last Friday’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 the current rebound to continue and look for a quick test of initial resistance at $1312 (3/28 high)  followed by $1314 (50% retracement of down move from 2/20 $1347 high to 3/7 $1281 low, down trendline from 2/20 $1347 high) and then $1319 (3/27 high).

 Bears have been disappointed with gold’s Houdini like escape from triggering significant sell stops below the confluence of support between $1277-84 last Thursday, and its $25 rebound off of the $1281 low since then.  However, other bears still maintain that gold’s bounce to $1325 two weeks ago was overdone, and are using this current rebound to get short(er).  Bears believe gold’s downside has legs, and maintain that the recent two bounces from $1281 were just a modest upticks within the early stages of a more significant downside correction.  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 continue (encouraged by the recent golden cross in the S&P– 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 south.  Bears expect long liquidation to resume, and look for a retest of initial support at $1300 (psychological level, options) followed by $1297 (4/9 low) and then $1292 (4/8 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), oil prices, and will turn to reports tomorrow on Japan’s Machine Tool Orders and Bank Lending, China’s New Yuan Loans, UK’s Trade Balance, Industrial Production, Construction Output and GDP, ECB’s Rate Decision, US CPI, Real Earnings, Oil Inventories, FOMC Minutes, Monthly Budget Statement, and comments from the BOJ’s Kuroda and the ECB’s Draghi for near term guidance. 

 In the news:

TDS – positioning for $1322 sooner than anticipated:   https://www.fxstreet.com/news/gold-positioning-for-1-322-sooner-than-anticipated-tds-201904090643

 Brexit – what happens now?:   https://www.bbc.com/news/uk-politics-46393399

 Citi – gold to hit $1400 on China, central bank buying:   https://www.newsmax.com/finance/streettalk/china-gold-buying-prices/2019/04/08/id/910632/

YTD Performance


12/31/2018

4/9/2019

Change
% Change
Gold


1282.5

1304

21.5

1.676%

DX


96.06

97

0.94

0.979%

S&P


2505

2879

374

14.930%

JYN


109.63

111.13

1.5

1.368%

Euro


1.1466

1.1264

-0.0202

-1.762%

US 10-year bond yield


2.686

2.499

-0.187

-6.962%

Oil (WTI)


45.45

64.05

18.6

40.924%

 

 Resistance levels: 

$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

$1307 – 40-day moving average

$1308 – 50-day moving average

$1312 – 3/28 high

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

$1314 – down trendline from 2/20 $1347 high

$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

$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:

$1302 – 20-day moving average

$1300 – 3/29 high

$1300 – psychological level, options

$1297 – 4/9 low

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

$1292 – 4/8 low

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

*$1286– 100-day moving average

$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

*$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

$1250 – 200-day moving average