Gold Traders’ Report - August 20, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
AUG 20, 2019

After declining $27 over the past two sessions, gold rebounded last night, climbing in a range of $1494 - $1508.45.  Bargain hunting buying was seen, which accelerated after the market broke back above the $1500 level.  The advance was fueled by a decline in global bond yields (German 10-year bund from -0.649% to -0.694%, UK 10-year gilt from 0.484% to 0.433%, Japan’s 10-year from -0.223% to -0.24%, US 10-year from 1.603% to 1.559%), and a retreat from early gains in S&P futures (2932 – 2916).  Gold was able to gain despite further strength in the US dollar (DX from 98.29 – 98.42).  The DX was helped by weakness in the euro ($1.1088 - $1.1070, expectations for large stimulus package overcomes a stronger German PPI) and the pound ($1.2138 - $1.2064, hard Brexit fears mount as EU negotiators ruled out any renegotiation of withdrawal agreement, including Irish backstop).  Ahead of the NY open, however, gold retreated to $1502 against a rebound in S&P futures (2927), which were led by a stronger earnings report from Home Depot.  

US stocks opened softer (S&P -19 to 2904), with losses in the Materials, Financials, and IT sectors leading the decline, and hurt from news that Italian Prime Minister Conte was resigning (European shares sell off).  The US 10-year bond yield dipped further (1.54%) as did the German 10-year yield (-0.706%).  The DX rallied to 98.46 (3-week high) as the euro sank ($1.1066).  Gold was caught in the cross currents, and traded in a choppy manner between $1502-$1507. 

Later in the morning, US stocks turned higher (S&P rallies back to 2924 – unchanged), helped by the FDIC approving a change to the Volker Rule – easing trading regulations for banks (still needs approval from Fed, CFTC, and SEC).  The US 10-year yield edged back up to 1.562%, but the dollar traded down (DX to 98.21).  The DX was pressured by a surge in the pound ($1.1278) and a bounce in the euro ($1.1096) as Merkel said that they will think about practical solutions to the backstop.  Gold was again mired in cross currents but moved lower to $1501.50. 

Into mid-day, US equities turned back down (S&P -9 to 2914) as the 10-year yield ticked down to 1.552%.  The DX slipped further to 98.20, and gold clawed back to $1506.

Stocks softened further into the afternoon (S&P -19 to 2904) - hurt from some tough talk from Trump on the US-China trade talks which overshadowed comments about potential capital gains and payroll tax cuts  -but found support at their opening low. The US 10-year bond yield remained above 1.55%, but he DX slid further to 98.12, and took out yesterday’s 98.13 low.  Gold edged higher to reach $1507, but was unable to take out the overnight high.   

Late in the afternoon, the S&P took out its intraday low to reach 2900 before finishing off 21 to 2902, while the 10-year was steady around 1.55%.  The DX came off its low to trade between 98.15 – 98.20, and gold ticked up to $1508 – but failed again to take out the overnight high.  Gold was $1507 bid at 4PM with a gain of $12. 

Open interest was off 5.7k contracts, showing a net of long liquidation from yesterday’s decline.  Volume was lower with 317k contracts trading. 

Bulls were pleased with gold’s $12 rebound today and its ability to climb back above the key $1500 level despite US stocks remaining fairly steady and with the DX making a fresh 3-week high.  Bulls remain encouraged with the strength and consistency of bargain hunting buying on price declines, as seen off of the $1494 low last night, and later holding above $1500 intraday today.  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 last Tuesday.  Despite Powell’s somewhat hawkish comments on 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 yesterday) 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 82.2% probability of another 25bp cut at the October meeting, and a 54.8% 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 $1513 – (8/19 high), $1527-28 (double top - 8/15 and 8/16 highs), $1530 (up trendline from 8/1 $1401 low), 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 disappointed with gold’s ability to advance as sharply as it did today (+0.80%), given the more modest declines in US stocks and the DX.  Bears remain concerned that gold keeps attracting buying on both dips and momentum, and was able to advance this morning despite the DX climbing to a 3-week high at 98.46.  Bears are encouraged, however, that the US dollar has continued its rebound (higher highs in the last 7 sessions, up 1.18% since 97.31 low on 8/13, remains within 0.50 of its 21-month high) along with US stocks (S&P up 100 points since its 2822 low on 8/5), and the 10-year bond yield (back over 1.55% 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 63) 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 (triple bottom, 8/14, 8/19, and 8/20 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 Japan’s Retail Sales, US MBA Mortgage Applications, Existing Home Sales, Oil Inventories, and the Minutes of the FOMC’s 7/31 meeting for near term direction. 

 

In the news: 

CME – gold, copper and oil go their separate ways:   https://www.cmegroup.com/education/featured-reports/videos/gold-copper-and-oil-go-their-separate-ways.html?utm_source=pardot&utm_medium=email&utm_campaign=economic_research_trade_war

Price surge spells “hell” for India gold sales as demand wanes:   https://www.bnnbloomberg.ca/price-surge-spells-hell-for-india-gold-sales-as-demand-wanes-1.1303913

 

YTD Performance


12/31/2018

8/20/2019

Change
% Change
Gold


1282.5

1507

224.5

17.505%

DX


96.06

98.16

2.1

2.186%

S&P


2505

2902

397

15.848%

JYN


109.63

106.21

-3.42

-3.120%

Euro


1.1466

1.1099

-0.0367

-3.201%

US 10-year bond yield


2.69%

1.550%

-0.0114

-42.293%

Oil (WTI)


45.45

55.95

10.5

23.102%

 

 

Resistance levels: 

$1508 – 8/20 high

$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:

$1500 – options

$1493-4 – triple bottom 8/14, 8/19, and 8/20  lows

$1480 – 8/13 low

$1472 – 8/7 low

$1471– 20-day moving average

$1457 – 8/6 low

$1450 – options

$1442 - 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

$1427 – 50-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

$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 – 100-day moving average

$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

$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

*$1320 – 200-day moving average