Gold Traders’ Report - August 15, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
AUG 15, 2019

Gold was very choppy with other financial markets last night, trading in a range of $1508 - $1524.  Gold rose to its $1524 high during early Asian time, where resistance at yesterday’s high and ahead of options resistance at $1525 capped the advance, and with a slump in the US 10-year bond yield (1.547%) fueling the move.  The yellow metal retreated to its $1508 low during late Asian time against a moderate bounce from yesterday’s thrashing in S&P futures (+25 to 2865), helped by an upbeat tweet from Trump (expresses confidence in Xi to solve Hong Kong unrest) which lifted the 10-year yield to 1.593%, and the DX to 98.06 (took out yesterday’s 98.05 high).  During later European time, gold rallied back to $1523 on tough comments from China’s Finance Ministry (will have to take necessary countermeasures to offset the latest US tariffs on $300B of Chinese goods, US violated agreement reached between Trump and Xi at G20), as US equity futures tumbled (S&P futures to 2818) and the US 10-year bond yield sank (1.52%, fresh 35-month low).  However, equities recovered (S&P futures to 2849) ahead of the NY open off of a stronger earnings report from Walmart and following a more conciliatory remark from China’s Foreign Ministry (hopes US will meet China halfway and implement the consensus reached by the two leaders in Osaka).  This sent gold down to $1511, but dip buying ahead of the prior low held.

 At 8:30 AM, much stronger reports on US Retail Sales (0.7% vs. exp. 0.3%), Empire State Manufacturing (4.8 vs. exp. 1.9), Philly Fed (16.8 vs. exp. 10) Unit Labor Costs (2.4% vs. exp. 1.8%), and Nonfarm Productivity (2.3% vs. exp. 1.4%) outweighed a miss on Jobless Claims (220k vs. exp. 212k).  S&P futures rallied further (2860), the 10-year yield bounced to 1.591% (2-10 year spread moved out to +0.015% after being inverted yesterday) and the DX rose to 98.01.  Gold softened to $1509 in response, but support ahead of the overnight low held again.  

Worse than expected reports on US Industrial Production (-0.2% vs. exp. 0.1%) and Capacity Utilization (77.5% vs. exp. 77.8%) at 9:15 AM tugged US stocks lower through their open (S&P -7 to 2833).  The 10-year yield slipped to 1.562%, the DX dipped to 97.91, and gold clawed back to $1518. 

At 10:00 AM, better than anticipated reports on the NAHM Housing Market Index (66 vs. exp. 65) and Business Inventories (flat vs. exp. 0.1%, but upward revision to last month’s report) took US stocks higher (S&P +18 to 2857), and lifted the 10-year yield to 1.574%.  The DX rose sharply (98.24), helped by a plunge in the euro ($1.1158 - $1.1091) off of dovish commentary from the ECB’s Rehn (ECB’s stimulus package in Sep could overshoot investor expectations).  Gold declined, but was fairly resilient – finding support at $1512.  

From mid-day into the afternoon, global bond yields made a fresh leg down (US 10-year tumbled to a fresh 36-month low 1.497%, German 10-year bund to fresh record low -0.719%, UK 10-year gilts to -0.401%.  US stocks turned negative (S&P -15 to 2824), hurt by losses in GE on an accusation of accounting fraud. The DX retreated, but remained over 98 (98.04) with the euro still soft, and gold took out its overnight high and double top to reach $1527. 

Later in the afternoon, US stocks rallied to finish in positive territory (S&P finished +7 to 2748 ), helped by a modest bounce in GE (Stan Druckenmiller said he bought the stock today) and a recovery in oil (WTI to $54.70).  The 10-year yield edged up to 1.51%, while the DX was a little choppy between 98.05 – 98.20.  Gold came off its high and was $1523 bid at 4PM with a gain of $6.

Open interest was up 4.9k contracts, reflecting a net of new longs from yesterday’s rally.  Volume was lower but still very robust with 509k contracts trading. 

Bulls will take gold’s $6 advance today, but some were looking for a bit more given the volatility in stocks and the plunge in global bond yields.  However, bulls remain positive about with the bargain hunting bids that helped the market remain above $1508 on the several dips seen in today’s choppy session. 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 on Tuesday.  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 reflected higher probabilities of future Fed rate cuts with a 100% chance of at least a 25bp cut at the September meeting (32.7% chance of a 50bp cut), an 82.2% probability of another 25bp cut at the October meeting, and a 59.8% chance of a third future cut at the December meeting.  This, bull argue, will continue to 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 36-month low 1.497% today, 2-10yr inverted yesterday) 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 $1524 (8/14 high), $1525 (options), $1527 (today’s high), and then $1535 (8/13 high).  Bullish technicians see no chart resistance between $1535 and $1591 - the high from 4/7/13. 

While bears were disappointed with gold gaining ground today given the firming US dollar (DX touched 98.24 today, 2-week high), most were relieved that the advance was modest  - given the dive in global bond yields and volatility in stocks.  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 dips toward $1510.  Bears remain concerned that gold continues to attract buying on dips – and on momentum - despite the DX firming (higher highs in 6 of the last 8 sessions, rose 0.93, 0.96%) 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 = 72.4) 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 strengthen further 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 (misses on German GDP and Eurozone Industrial Production yesterday) 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 another record low today -0.719%,) underscores this view.  Bears feel a US-China trade deal is in both sides’ best interests, and feel that Tuesday’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 to rebound, and will put further pressure on the yellow metal.  Bears look for a significant pullback from gold’s torrid rise, and expect considerable 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:  $1500 (options, up trendline from 8/1 $1401 low), $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, Hong Kong protests, Argentina), 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 Japan’s Capacity Utilization, Eurozone Trade Balance, US Housing Starts, Building Permits, University of Michigan Consumer Sentiment, Baker Hughes Rig Count, and Commitment of Traders for near term guidance.  

 

In the news:

BoA Merrill’s Ciana:  gold may hit $2300: https://uk.finance.yahoo.com/video/bofa-merrills-ciana-says-yield-214546279.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cubWV0YWxzZGFpbHkuY29tL2xpbmsvMjk1NDI0L2JvYS1tZXJyaWxsLWx5bmNoLWdvbGQtbWF5LWhpdC0kMi0zMDAuaHRt&guce_referrer_sig=AQAAAIIu3BV5TYKxLSvRjTEihyf-mFhQWVZbRT_HkB_7jKxTdIXXV-G7H1XqIYC1ESIG3a-sAXeHDlOlQB2sAzMJ7As2Og4LPX_aSWFJ_dxJwTJU60M9lxeqf0imExfIA6d1WzNh9WJCYQVjS4B3sc0TeReEKh9VxMvzPKAfGL00mhLR

UBS:  gold toe reach almost $1700 next year:   https://www.forbes.com/sites/simonconstable/2019/08/15/ubs-gold-to-reach-almost-1700-next-year/#1c7fc6fc40e8

Saxo Bank – Gold’s surge driven by global bond yield collapse:  https://www.home.saxo/en-gb/insights/content-hub/articles/2019/08/13/golds-surge-driven-by-global-bond-yield-collapse

Comes net longs near all-time highs as gold is at all-time highs in many currencies:   https://www.gold.org/goldhub/gold-focus/2019/08/comex-net-longs-near-all-time-highs-gold-all-time-highs-many-currencies

China curbs private gold imports as it adds 10 more tonnes to its own hoard:   https://www.zerohedge.com/news/2019-08-14/china-adds-10-more-tons-gold-its-hoard

 

YTD Performance


12/31/2018

8/15/2019

Change
% Change
Gold


1282.5

1523

240.5

18.752%

DX


96.06

98.00

1.94

2.020%

S&P


2505

2848

343

13.693%

JYN


109.63

106.03

-3.6

-3.284%

Euro


1.1466

1.1113

-0.0353

-3.079%

US 10-year bond yield


2.69%

1.508%

-0.0118

-43.857%

Oil (WTI)


45.45

54.65

9.2

20.242%

 

 

Resistance levels: 

$1524 – 8/14 high

$1527 – 8/15 high

$1535 – 8/13 high

$1591 – 4/7/13

 

Support levels:

$1519 – 8/12 high

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

$1500 – up trendline from 8/1 $1401 low

$1500 – options

$1494 – 8/14 low

$1480 – 8/13 low

$1472 – 8/7 low

$1459– 20-day moving average

$1457 – 8/6 low

$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

$1435 - 40-day moving average

$1430 – 8/2 low

$1425 – options

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

$1422 – 7/30 low

$1417 – 50-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

$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

$1353 – 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

*$1316 – 200-day moving average