Gold Traders’ Report - August 19, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
AUG 19, 2019

Gold traded lower last night, sliding in a range of $1512.65 - $1493.  It tripped long liquidating sell stops below key support levels of $1510 (up trendline from 8/1 $1401 low, former double top – 8/7 and 8/8 highs) and $1500 (options) on the way to its low where support at $1494 (8/14 low) held.  However, as we’ve seen numerous times in recent months, some bargain hunting buying emerged to lift the market back up to $1499.  Gold was pressured by risk on sentiment that lifted global bond yields (Japan’s 10-year from -0.231% to -0.22%, German 10-year bund from -0.691% to -0.625%, US 10-year bond yield from 1.572% - 1.625%) and global equities (NIKKEI +0.7%, SCI +2.1%, European markets up from 0.9% to 1.0%, and S&P futures +0.9%).  Stocks were aided from signs that major economies would look to add fresh stimulus to prop up stalling growth (PBOC announced interest rate reforms, Germany indicated it could make available up to $55B in extra spending), along with some upbeat comments from Trump (dismisses recession fears, US and China are talking, conciliatory remarks on tariffs regarding Apple) and Larry Kudlow (no recession in sight, would speak with China in 10 days, planning to have China come to the US), along with an announcement that the US would extend a temporary license for Chinese telecom Giant Huawei for another 90 days.  A modest firming in the US dollar (DX to 98.26) was another headwind for the yellow metal, as the greenback was helped by weakness in the pound ($1.2172 - $1.2104, Brexit fears). 

US stocks opened higher (S&P +36 to 2925), with strong gains in the IT, Energy, and Communication Services sectors leading the advance.  A rally in oil (WTI to $56.04, drone attack by Yemen’s Houthi group on a Saudi field) contributed to the move.  The US 10-year bond yield was a little choppy but remained over 1.60%, and the DX firmed to 98.26.  Gold pulled back in response, but bargain hunting bids limited the dip to $1496. 

Later in the morning, US equities pared some gains (S&P +27 to 2915), and the 10-year yield slipped to 1.594%.  The DX edged down to 98.18, and gold broke back above $1500 to reach $1503.  

US stocks turned up into mid-day and took out their opening highs (S&P +38 to 2927), helped by a tweet from Trump calling for a 100bp rate cut over a short period of time along with some quantitative easing.  The 10-year yield edged down to 1.588%, but the DX hovered between 98.20-25.  Gold was caught in the cross currents and traded in a choppy fashion either side of $1500.

In the afternoon, equities remained firm (S&P finished +35 to 2923), helped by oil making a fresh high (WTI to $56.11).  The 10-year yield ticked up to 1.608% and the DX took out its prior high and Friday’s 98.34 top to reach 98.40 (2-week high).  The DX was aided by a drop in the euro ($1.1075, ECB’s Ollie Rehn repeats that stimulus is needed to ensure financial conditions remain very favorable and to support euro area growth and domestic price pressures).  Gold was pressured lower, but was supported at $1494 – ahead of the overnight low.  It was $1495 bid at 4PM with a loss of $16. 

Open interest was off 6.5k contracts, showing a net of long liquidation from Friday’s decline.  Volume was lower with 341k contracts trading. 

Bulls were disappointed with gold’s decline today, and its inability to hold above $1500.  However, other bulls used today’s dip to get long(er) at better levels, and they remain encouraged with the strength and regularity of bargain hunting buying on price declines.  The bulls remain ecstatic with gold’s sharp advance that has extended to $260 (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 “mid-cycle 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 continue to reflect high probabilities (though they declined a fair amount today) 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 76% probability of another 25bp cut at the October meeting, and a 46.5% chance of a third future cut at the December meeting.  This, bulls 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% last Thursday, 2-10yr inverted last Wednesday) 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 $1500 followed by $1513 – (today’s high), $1520 (up trendline from 8/1 $1401 low), $1527-28 (double top - 8/15 and 8/16 highs), and then $1535 – 8/13 high.  Beyond $1535, bullish technicians see no significant chart resistance until $1591, the high from 4/7/13.  

Bears were pleased with today’s $16 decline – especially that the market finished near its low and under $1500 – as they have been concerned that gold has attracted buying on both dips and on momentum.  Bears are encouraged that the US dollar has continued to rebound (higher highs in the last 6 sessions, up 1.11% since 97.31 low on 8/13) along with US stocks (S&P up 100 points since its 2822 low on 8/5), and the 10-year bond yield (back over 1.60% from its 1.475% 3-year low last Thursday).  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 still elevated at 61) and expect a more significant pullback to ensue.  Bears feel that markets are a bit over their skis on rate cut predictions, feel that the downward pressure on bond yields is also overdone, and that 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 last Wednesday) for both Germany and the Eurozone that drove the German 10-year yield further into negative territory over the past months (German bund yield made another record low Friday -0.727%,) underscores this view.  Bears feel a US-China trade deal is in both sides’ best interests, and feel that last 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 putfurther 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 290k contracts, highest in 3 years, long gold now a crowded trade) to materialize if support at the following levels can be breached: $1493-94 (double bottom, 8/19 and 8/14 lows), $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 Germany’s PPI, Eurozone Construction Output, and comments from the Fed’s Quarles for near term direction.  Looming ahead are the minutes from the 7/31 Fed meeting on Wednesday Powell’s Jackson Hole address on Friday.  

 

In the news:

Hong Kong unrest sends gold investors to seek haven in Singapore:   https://www.bloombergquint.com/markets/hong-kong-unrest-sends-gold-investors-to-seek-haven-in-singapore

Degussa – the gold bull market is back:   http://news.degussa-goldhandel.de/marketreport/newsletter/V62PQQE0L5.pdf

Gold speculators edged their bullish bets lower this week:   https://www.investing.com/analysis/gold-speculators-edged-their-bullish-bets-lower-this-week-200456084

Heraeus Precious Appraisal:   https://www.heraeus.com/media/media/hpm/doc_hpm/precious_metal_update/en_6/Appraisal_20190819.pdf

 

YTD Performance


12/31/2018

8/19/2019

Change
% Change
Gold


1282.5

1495

212.5

16.569%

DX


96.06

98.39

2.33

2.426%

S&P


2505

2922

417

16.647%

JYN


109.63

106.64

-2.99

-2.727%

Euro


1.1466

1.1079

-0.0387

-3.375%

US 10-year bond yield


2.69%

1.603%

-0.0108

-40.320%

Oil (WTI)


45.45

56.19

10.74

23.630%

 

 

Resistance levels: 

$1500 – options

$1513 – 8/19 high

$1520 – up trendline from 8/1 $1401 low

$1527 - 28 – double top - 8/15 and 8/16 highs

$1535 – 8/13 high

$1591 – 4/7/13

 

Support levels:

$1493-4 – double bottom 8/14 and 8/19 lows

$1480 – 8/13 low

$1472 – 8/7 low

$1467– 20-day moving average

$1457 – 8/6 low

$1450 – options

$1440 - 40-day moving average

$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

$1425 – options

$1424 – 50-day moving average

$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

$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

$1357 – 100-day moving average

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

$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

*$1319 – 200-day moving average