Gold Traders’ Report - August 1, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
AUG 1, 2019

Powell roiled markets yesterday when he said the Fed was just making a “midcycle adjustment” and was not the start of a longer running rate cutting cycle.  Fed Fund Futures took down the probabilities of Fed rate cuts to a 56.5% chance for a cut in Sep ,with a 76.1% chance of a 2nd cut by the October meeting, and a less than even (41.8%) chance of a third 25bp cut by the December meeting.  The S&P plunged (-55 to 2958), while the 10-year yield sank to 2.006%.  The DX soared to 98.69, and gold sold off, with long liquidating sell stops hit under $1414 and $1411 to reach $1409.50 (2-week low).

Last night, gold softened further in a range of $1402 - $1415, against a recovery in US equity futures (S&P futures +7 to 2989), a bounce in the US 10-year bond yield (2.025% - 2.058%), and a further rally in the US dollar (DX from 98.69 – 98.94, fresh 26-month high).  The dollar was buoyed by weakness in the euro ($1.1081 - $1.1026 , 26-month low, Eurozone PMI data still contractionary) and the pound ($1.2160 - $1.2084, 30-month low, BOE’s Carney  warns of negative impact of no-deal Brexit).  

At 8:30 AM, US Jobless Claims were a bit worse than expected (215k vs. exp. 212k), which helped push S&P futures down to 2978.  The 10-year bond yield softened (2.00%) amid a decline in other global yields (German 10-year to -0.448%, record low, UK 10-year to 0.585%), while the DX dipped to 98.82.  Gold bounced in response, and traded up to $1407. 

US stocks opened stronger (S&P +13 to 2993), helped by a stronger earnings report from GM and strength in the IT sector.  A stronger than expected reading on the US Markit Manufacturing PMI (50.4 vs. exp. 50.1) contributed to the move.  The US 10-year bond yield continued to soften, however, reaching 1.993%.  The DX was caught in the cross currents and was choppy between 98.82 – 98.93, and gold slipped to $1400.50 – where support at$1400 - 01 (triple bottom – 7/11, 7/16, and 7/17 lows) held.

At 10AM, much worse than expected reports on US Construction Spending (-1.3% vs. exp. 0.4%) and ISM Manufacturing (51.2 vs. exp. 51.7, prices paid component 45.1 vs. exp. 49) tugged US stocks briefly lower (S&P +8 to 2988), while the 10-year yield slid further to 1.952% (4-week low).  The DX tumbled to 98.60, and gold rallied back to $1414 – where the old support point held. 

US stocks resumed their climb into mid-day (S&P +34 to 3014 – back to pre-FOMC statement levels) with the IT sector up over 2%, and shrugging off a plunge in oil (WTI from $57.95 - $56.46). The 10-year yield hovered around 1.955%, but the DX fell further to 98.52 – pressured by some short covering in the euro ($1.1070) and the pound ($1.2155).  Gold continued its recovery rally and reached $1420. 

In the afternoon, a big surprise announcement from Trump that the US will be putting a 10% tariff on the remaining $300B of Chinese imports effective 9/1 rocked the markets.  The S&P reversed gains (S&P -28 to 2951), and took out yesterday afternoon’s low, with a further tanking of oil (WTI to $53.60) contributing to the move.  The US 10-year yield sank to 1.885% (33-month low), and the DX plunged to 98.26.  Gold shot higher, and took out resistanceat $1433-34 (double top 7/25 and 7/30 highs) and $1436-39 triple top (6/25 7/2, and 7/3 highs) to reach $1440 (2-week high).  

Later in the afternoon, equities went out near their lows (S&P -27 to 2954), and unable to finish above yesterday’s low.  The 10-year ticked lower to 1.88%, and the DX hovered between 98.30 – 98.40.  Gold pushed higher to reach $1446, where resistance there (5/12/13 high) halted the advance.  Gold was $1444 bid at 4PM with a gain of $30. 

Open interest was up just 0.1k contracts, showing near balance between long liquidation against new shorts and bargain hunting longs from yesterday’s decline.  Volume was much higher with 444k contracts trading.  

Bulls turned from discouraged at this morning’s $1400 low to joyful after Trump’s announcement of further tariffs launched the market to $1446, engineering a key reversal day that should attract further technical buying and leaving the gold within $ of its 6-year high of $1453 made on 7/18.  The bulls remain ecstatic with gold’s sharp advance that has extended to $183 (14.4%) from the $1270 low on May 21 to the $1453 6-year high on 7/18.  Despite Powell’s somewhat hawkish comment of yesterday’s rate cut being just a “midcycle adjustment” and was not the start of a longer running rate cutting cycle, bulls feel Trump’s surprise additional tariffs on China today raised concerns of an escalation of the simmering trade war, further uncertainty, and increased the probability of a more severe global economic slowdown – which only increased chances the Fed would need to cut again and more aggressively.  Fed Fund Futures –which had backed off yesterday, showed marked increases in the probabilities of hikes with a  72.7% chance of a 25bp cut at the Sep meeting, an 86.4% chance of the cut by the Oct meeting, and a 56% chance of a third 25bp cut by the Dec meeting.  This, bull argue, will put downside pressure on the entire rate curve and on the US dollar – allowing gold to move significantly higher.  In addition, bulls feel expected further escalating fears / uncertainty of a protracted trade war with China will continue to impede global growth,  will put downward pressure on interest rates (US 10-year made fresh 33-month low 1.882%) and will keep the Fed and most other Central Banks positioned dovishly.  Bulls also see current geopolitical tensions – especially between the US/UK and Iran and North Korea - as another tailwind for gold.  Bulls will look for the market to resume its rally, and expect a test of initial resistance at $$1446 (double top - 5/12/13 and today’s high), $1450 (options), $1453 (7/18 high), $1479 (5/5/13 high), $1488 (4/28/13), and then $1496 (4/14/13 high). Bullish technicians are quick to point out that there is a vacuum between $1496 and $1591 - the high from 4/7/13. 

Bears were encouraged yesterday from Powell’s less than dovish “mid-cylcle adjustment” that sent gold down to support at $1400 early on - with some taking profits ahead of that level - but were disappointed when the weak ISM and Construction Spending reports failed to give them a crack a breaking that $1400 support level.  Later on, some were just decimated with Trump’s surprise announcement of additional tariffs on China, and some stopped out multiple times on the run to $1446.  However, some bears with stronger hands used this afternoon’s strength to re-establish shorts and get shorter at much better levels.  Bears remain concerned that gold continues to attract buying on dips – and on momentum - despite the DX holding up fairly well (made fresh 26-month high, held above 98.25).    Bears continue to see gold as an overbought market that has risen $183 (14.4%) from the 5/20 $1270 low.  With today’s move, its RSI is back at an elevated 61 - and the bears expect a more significant pullback to resume.  While bears acknowledge that today’s surprise announcement from Trump throws fuel on the simmering trade war fire - negating much of yesterday’s somewhat less than dovish approach from Powell -  they feel that markets are a bit over their skis on rate cut predictions - especially with the ECB not as dovish as expected last week.  They feel that the downward pressure on bond yields is also getting overdone, and a modest reversal should allow the US dollar to continue to strengthen (regained 98 handle last Friday, fresh 26-month high earlier today) against other currencies as they feel the dollar still remains the “cleanest dirty shirt in the laundry basket”, with the US as the sole global growth engine. Recent soft data for both Germany and the Eurozone that drove the German 10-year yield further into negative territory over the past months (German bund yield at record low today,  -0.465%) underscores this view.  Bears feel a US-China trade deal is in both sides’ best interests, and feel that recent trade truce and the resumption of face to face negotiations are the first positive steps toward this end.  This they feel will help drive equities higher, and will put further pressure on the yellow metal.  Bears look for gold to continue to resume its pullback from its torrid rise, and expect some significant long liquidation selling (large specs with a very heavy net long position) to materialize if  support at the following levels can be breached:  $1414 ($1414-16 - 5 bottoms - 7/18, 7/23, 7/24, 7/26, and 7/29 lows),  $1400 - 01 (4 bottoms – 7/11, 7/16, 7/17, and 8/1 lows), $1379-84 (triple bottom – lows 6/24, 7/1, and 7/2, trend line from 6/21 $1383 low) and $1346 (downtrend line from 8/25/13 $1433 high). 

All markets will continue to focus on geopolitical events (especially Brexit news and US / UK - Iran tensions), developments with the Trump Administration (especially on US-China trade, potential legal issues), Q2 corporate earnings, oil prices, and will turn to reports tomorrow on the BOJ’s Policy Meeting Minutes, Eurozone PPI and Retail Sales, US Payroll Report, Trade Balance, Factory Orders, Durable Goods, University of Michigan Sentiment, Baker Hughes Rig Count, and Commitment of Traders for near term direction.  

 

In the news:

WGC Gold Demand Trends Q2:   https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q2-2019

Gold and silver dive on a less downbeat Fed:   https://www.sharpspixley.com/articles/lawrie-williams-gold-and-silver-dive-on-less-downbeat-fed_295058.html

BlackRock’s gold ETF holdings climb to a record high:   https://www.bloomberg.com/news/articles/2019-07-31/blackrock-ishares-gold-etf-holdings-climb-to-a-record-amid-rally

JP Morgan says its time to sell gold:   https://www.nasdaq.com/article/jp-morgan-says-it-is-time-to-sell-gold-cm1187460

 

YTD Performance


12/31/2018

8/1/2019

Change
% Change
Gold


1282.5

1444

161.5

12.593%

DX


96.06

9898.40

9802.3

10204.393%

S&P


2505

2954

449

17.924%

JYN


109.63

107.42

-2.21

-2.016%

Euro


1.1466

1.1084

-0.0382

-3.332%

US 10-year bond yield


2.69%

1.880%

-0.0081

-30.007%

Oil (WTI)


45.45

54.5

9.05

19.912%

 

Resistance levels: 

$1446 – double top 5/12/13 and 8/1  highs

$1453– 7/18 high

$1450 – options

$1479 – 5/5/13 high

$1488 – 4/28/13

$1496 – 4/14/13 high

$1500 – options

$1591 – 4/7/13

 

Support levels:

$1436-39 triple top – 6/25 7/2, and 7/3 highs

$1433-34 – double top 7/25 and 7/30 highs

$1425 – options

$1422 – 7/30 low

$1418– 20-day moving average

$1414-16  – 5 bottoms - 7/18, 7/23, 7/24, 7/26, and 7/29 lows

$1411 – 7/25 low

$1400 - 01 – 4 bottoms – 7/11, 7/16, 7/17, and 8/1 lows

$1400 – options

$1398 - 40-day moving average

$1390 – 7/10 low

$1386-87 – double bottom, 7/5 and 7/9 lows

$1382 -84 – triple bottom – lows 6/21, 7/1, and 7/2

$1379 – 50-day moving average

$1379 – trend line from 6/21 $1383 low

$1373-75 – double top – 7/6/16 and 7/11/16 highs

$1365-67– triple top – 8/2/16, 1/25/18 and 4/11/18 highs

$1360 -  50% retracement of up move from 5/2 $1266 low to 7/18 $1453 high

$1358 – 6/20 low

$1353-56 – quadruple top – 4/12/18, 4/18/18, 4/19/18, and 6/18 highs

$1346 – down trendline from 8/25/13 $1433 high

$1344-48 – 6 tops , 2/20 and  4/20/18, 6/5, 6/7, 6/13, and 6/17 highs

$1342 – double top - 2/19 and 2/21 highs

$1338 – double bottom -6/14 and 6/18 lows

$1338 - 40 – triple top – 6/6, 6/10 and 6/12 highs

$1335 – 100-day moving average

$1332-33 – double bottom – 6/13 and 6/17 lows

$1327-30 – triple top, 6/3, 6/4, and 6/11 highs

$1325 – options

$1325-26 – triple bottom – 6/5, 6/10, and 6/12  lows

$1324 – double bottom 6/4 and 6/11 lows

$1309-12 - triple top – 3/28, 4/10 and 4/11 highs

$1307 – 50% retracement of up move from 8/16/18 $1160 low to 6/25 $1439 high

*$1303 – 200-day moving average

$1301 – double top 5/13 and 5/15 highs

$1300 – psychological level, options

*$1297 – up trendline from 8/16/18 $1160 low

$1279 – 5/29 low

$1276 – 5/28 low

$1275 – options

$1274-75 – double bottom  – 5/17 and 5/20 lows

$1273 – 5/22 low

$1269-70– triple bottom - 4/24, 5/3, and 5/21 low

$1265-67 – 5 bottoms - 12/25, 12/26, 12/27, 4/23, and 5/2  lows

$1259 – 12/24 low

$1254 – 12/21 low

$1250 – options

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