Gold Traders’ Report - August 13, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
AUG 13, 2019

Gold surged to another 6-year high last night, climbing from $1510 to $1535.  The advance was fueled by continued weakness in global equities with the NIKKEI off 1.1%, the SCI was down 0.6% (despite China’s higher Foreign Direct investment), European markets were off from 0.5% to 0.9%, and S&P futures were -0.5%.  Equities were pressured from the deteriorating geopolitical / economic backdrop with the escalating unrest in Hong Kong, debt default in Argentina, continuing US-China trade war, softening global economic data, along with tensions with Iran and the prospect of a hard Brexit.  Gold also got a boost from a decline in global bond yields (German 10-year bund to record low -0.619%, UK 10-year gilt to 0.459%, US 10-year to 1.622%) and a slight decline amid choppy trade in the US dollar.  The DX firmed early (97.64) against a softer euro ($1.1185, weaker German and Eurozone ZEW surveys), but softened during later European time against the safe haven yen (105.06, support ahead of yesterday’s 7-month 105.05).  

At 8:30 AM, the headline month over month US CPI Report was +0.3% as expected, but the year over year (1.8% vs. exp. 1.7%) and Core month over month (0.3% vs. exp. 0.2%) were hotter than expected.  The US 10-year bond yield rose to 1.652% while the DX bounced to 97.48, and gold slipped to $1516. 

Shortly afterward, news that the US and China had phone conversations that resulted in the US delaying some China tariffs from September to December (including cellphones, laptops, video game consoles, and footwear), and removing some items outright from the list of new tariffs.  US stocks surged (S&P +60 to 2944), led by gains in Apple, retailers, and the IT, Materials, Financials, Industrials, Communication Services, and Consumer Discretionary Sectors.  A spike higher in oil (WTI from $54.45 - $57.22, 2-week high) contributed to the move.  The 10-year yield popped to 1.707% as the DX rallied to 97.82 (1-week high) - and gold sold off.  Stops were hit under $1519 (yesterday’s high) $1510 (8/7 and 8/8 highs), $1500 and $1488 (yesterday’s low) to reach 1480, with a fair amount of long liquidation seen. 

US stocks pared gains into the late morning (S&P +34 to 2917), hurt by reports of further unrest in Hong Kong.  The 10-year yield retreated to 1.666%, and the DX was knocked back to 97.68.  Gold rebounded in response, and recaptured the $1500 level to reach $1507, with strong bargain hunting buying seen. 

In the afternoon, US stocks had a modest rebound then held relatively steady through the close (S&P finished +44 to 2926), with comments from Trump that progress was being made in the US-China negotiations supportive.  The 10-year yield hovered between 1.67% - 1.69%, and the DX was fairly stable between 97.75 – 97.83.  Gold was a little choppy between $1497 - $1504, and was $1503 bid at 4PM with a loss of $9. 

Open interest was up big – 21.2k contracts -  showing a good chunk of new longs from yesterday’s rally.  Volume was higher with 372k contracts trading. 

Bulls were disappointed after this morning’s rally to a fresh 6-year high at $1535 was erased and turned into a plunge to $1480.  However, bulls were encouraged with the bargain hunting bids that helped the market recover from today’s $1480 low back over $1500.  The bulls remain ecstatic with gold’s sharp advance that has extended to $265 (20.4%) from the $1275 low on May 30 to the $1535 6-year high today.  Despite Powell’s somewhat hawkish comments of the recent rate cut being just a “midcycle adjustment” and was not the start of a longer running rate cutting cycle, bulls feel that Trump’s surprise additional tariffs on China two weeks ago along with ongoing tough rhetoric from both sides (US accused China of manipulating their currency as the yuan fell below 7 to the USD, China accused the US of destroying the international order with unilateralism and protectionism) continues to escalate the ongoing 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 are still showing high probabilities of future Fed rate cuts with a 100% chance of at least a 25bp cut at the September meeting (5% chance of a 50bp cut), a 67.9% probability of another 25bp cut at the October meeting, and a 31.5% chance of a third future cut at the December meeting.  This, bull argue, will continue to put downside pressure on the entire rate curve (2-year and 10-year 2bp from inverting today) 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 34-month low 1.595% last week) and will keep the Fed and most other Central Banks positioned dovishly.  Bulls also see current geopolitical tensions – especially the situation between Hong Kong and Mainland China, Argentina, the US/UK and Iran and North Korea - as additional tailwinds for gold.  Bulls will look for the market to resume its rally, and expect a test of initial resistance at $1510 (double top – 8/7 and 8/8 highs), followed by $1519 (8/12 high) and then $1535 (today’s high).  Bullish technicians see no chart resistance between $1535 and $1591 - the high from 4/7/13. 

Bears were encouraged with gold’s sharp decline from $1535 to $1480 off of the resumption of phone negotiations between the US and China, and the removal / delay of some of the previously announced tariffs on China.  While some bears were stopped out over $1525 early this morning, other bears with stronger hands used the advance to get short(er) at better levels, and took profits on the dip below $1500.  Bears remain concerned that gold continues to attract buying on dips – and on momentum - despite the DX holding up fairly well (continues to hold above 100-day moving average 97.35). Bears continue to see gold as an overbought market that has risen $265 (20.4%) from the $1275 low on 5/30 (14-day RSI = 68.6) and expect a more significant pullback to resume. Bears feel that markets are a bit over their skis on rate cut predictions - especially with the ECB not as dovish as expected at their last meeting.  They feel that the downward pressure on bond yields is also overdone, and a modest reversal should allow the US dollar to resume strengthening 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 (German and Eurozone ZEW missed today) 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 -0.619%,) underscores this view.  Bears feel a US-China trade deal is in both sides’ best interests, and feel that today’s announcement of the scaling back of tariffs along with the resumption of talks in two weeks are significant and 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 – Net Fund Long Position 292k contracts, highest in 3 years, long gold now a crowded trade) to materialize if support at the following levels can be breached:  $1472 (8/7 low), $1457 (8/6 low),  $1450 (options), $1438 (8/5 low), and $1430 8/2 low), $1423 (up trendline from 5/30 $1275 low). 

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 China’s Industrial Production, Retail Sales, and Jobless Rate, German GDP, UK CPI, PPI and House Price Index, Eurozone GDP, Industrial Production, and Employment, US MBA Mortgage Applications, Import Prices, Export Prices, and Oil Inventories for near term direction.  

 

In the news:

ABN AMRO – Gold:  near term correction risk:   https://insights.abnamro.nl/en/2019/08/precious-metals-watch-gold-near-term-correction-riisk/ 

Doug Casey on why gold is the best form of money:   https://www.zerohedge.com/news/2019-08-12/doug-casey-why-gold-best-money

CFTC – gold speculators sharply increase bullish bets again:   https://www.investing.com/analysis/gold-speculators-sharply-increase-bullish-bets-again-200453952

 

YTD Performance


12/31/2018

8/13/2019

Change
% Change
Gold


1282.5

1503

220.5

17.193%

DX


96.06

97.84

1.78

1.853%

S&P


2505

2926

421

16.806%

JYN


109.63

106.69

-2.94

-2.682%

Euro


1.1466

1.1172

-0.0294

-2.564%

US 10-year bond yield


2.69%

1.690%

-0.01

-37.081%

Oil (WTI)


45.45

57

11.55

25.413%

 

Resistance levels: 

 

$1510 -  double top – 8/7 and 8/8 highs

$1519 – 8/12 high

$1535 – 8/13 high

$1591 – 4/7/13

 

Support levels:

$1500 – options

$1480 – 8/13 low

$1472 – 8/7 low

$1457 – 8/6 low

$1450– 20-day moving average

$1450 – options

$1438 – 8/5 low

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

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

$1430 – 8/2 low

$1428 - 40-day moving average

$1425 – options

$1423 – up trendline from 5/30 $1275 low

$1422 – 7/30 low

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

$1411 – 7/25 low

$1410 – 50-day moving average

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

$1400 – options

$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

$1378 – 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

$1349 – 100-day moving average

$1345 – 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

$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

*$1313 – 200-day moving average

$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

$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