Gold Traders’ Report - August 23, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
AUG 23, 2019

Gold had a slight pullback last night, trading in a relatively narrow range of $1493.60 - $1499.  It failed to hold the pennant up trendline at $1499 and slumped to support at $1493-4 (4 bottoms 8/14, 8/19, 8/20, and 8/22  lows).  Gold was pressured by a firmer US 10-year bond yield (1.611% -1.661%) and stronger global equities (NIKKEI +0.40%, SCI up 0.49%, European markets were up from 0.45% to 0.74%, and S&P futures were +0.4%).  A stronger US dollar was also a headwind for gold as the DX rose from 98.20 to 98.45, where resistance at 98.45-46 (double top, 8/2 and 8/20 highs) held. 

Ahead of the NY open, some dovish comments from the Fed’s Bullard (concern over inverted yield curve, lower rates will help hit inflation target, been below inflation target since 2012, prefers insurance against downturn) lifted S&P futures (2934).  The 10-year bond yield was tugged down to 1.637%, and the DX slipped to 98.38.  Gold came off its low, and edged up to $1496. 

At 8:00 AM, markets were shaken on news that China was imposing new tariffs of 5-10% on $75B of US goods, including autos.  S&P futures sank (2902), along with the 10-year bond yield (1.601%).  The DX slipped to 98.29, and gold broke through resistance at $1500 and $1504 (yesterday’s high) to reach $1507, where resistance in front of $1508 (double top - 8/20 and 8/21 highs) held.

At 10AM, Powell’s much awaited Jackson Hole address was mildly dovish (pointed out that the global growth outlook has been deteriorating, trade policy uncertainty playing a role in the global slowdown and in weak manufacturing and capital spending in the US, and that the Fed “will act as appropriate to sustain the expansion”).  US stocks rebounded (S&P +4 to 2927), the 10-year yield slid to 1.576%, and the DX continued lower to 98.20.  Gold took out resistance at $1508 and $1513 (8/19 high) to reach $1515, where the advance was capped ahead of $1516 (pennant down trendline from 8/13 $1535 high). 

Shortly afterward, a tweet from Trump ordering US manufacturers to move from China in response to their earlier announced tariffs roiled markets.  US stocks sank (S&P -58 to 2864) as did the US 10-year bond yield (1.53%).  The DX plunged to 97.69 (2-week low), and gold rallied sharply.  It took out resistance at $1516 and $1527 - 28 (double top - 8/15 and 8/16 highs) to reach $1529.

Into the afternoon, US stocks slipped further (S&P -70 to 2852), while the 10-year yield dipped to 1.51% (1-week low).  The DX slid further to 97.59, hurt also by comments from the BOE’s Carney (world needs to end risky reliance of US dollar) and gold edged up to $1530.

Late in the afternoon, the S&P made a fresh low at 2834 before finishing at 2848 (off 75).  The US 10-year yield ticked up to 1.527%, and the DX came off its low to 97.73.  Gold edged down to $1527 and was $1528 bid at 4PM with a gain of $31. 

Open interest was up 2.9k contracts, showing a net of new shorts from yesterday’s decline.  Volume was higher with 301k contracts trading.  The CFTC’s Commitment of Traders Report as of 8/20  showed the large funds adding 6k contracts of longs and cutting 3.8k contracts of shorts to increase the Net Fund Long Position to 300k contracts – its largest in 3-years.  This was done on gold’s modest increase from $1502 on 8/13 to the $1507 on 8/20.  This NFLP is very large, and reflects how very crowded the long side of gold is currently.  It will begin to be an impediment for further upside gains, and the swelling of gross longs  (352k contracts) can hasten and exaggerate downside moves – if  / when the longs are forced to liquidate. 

Bulls cheered gold’s $30 advance today, and that the yellow metal was able to breach and hold key resistance levels of $1516 (pennant down trendline from 8/13 $1535 high), and $1527 - 28 (double top - 8/15 and 8/16 highs) – and remains within spitting distance of its $1535 6-year high.  Bulls are pleased with the strength and consistency of bargain hunting buying on price declines, as seen off of the $1493-94 support level last night.  The bullsremain 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.  Bulls were comfortable with Powell’s mildly dovish remarks today at Jackson Hole and with the tough rhetoric on tariffs from the Chinese and Trump today.  Bulls feel that this will further escalate the ongoing trade war, further uncertainty, and increase the probability of a more severe global economic slowdown – which only increases chances the Fed (and other central banks) will need to cut again and more aggressively, fueling further gains in gold.  Fed Fund Futures now have a 0% probability  of a hold at the September meeting, and a 100% chance of at least a 25bp cut, and a 9.6% chance of a 50bp cut.  The market is showing a higher 69.5% chance of two hikes by the October meeting, and a 45.6% chance of a 3rd hike at the December meeting.  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 extend its rally, and expect a test of initial resistance at today’s $1530 high followed by $1535 (8/13 and 6-year high).  Beyond $1535, bullish technicians see no significant chart resistance until $1591, the high from 4/7/13. 

Many bears were stopped out on gold’s $30 rally today, but other bears with stronger hands used the advance to get short(er) at more attractive levels. 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 66.7) 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 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 last Friday-0.727%,) underscores this view.  Bears feel a US-China trade deal is in both sides’ best interests, and feel that any resumption of talks will be viewed as positive steps by markets, which should help equities to rebound, and will put downward 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 300k contracts, highest in 3 years, long gold now a crowded trade) to materialize if support at the following levels can be breached: $1502 (8/21 low, pennant up trendline from 8/13 $1480 low), $1493-94 (5 bottom, 8/14, 8/19, 8/20, 8/22, and 8/23 lows), $1472 (8/7 low), $1457 (8/6 low),  $1450 (options), $1440 (up trendline from 5/30 $1275 low), $1438 (8/5 low), and $1430 8/2 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 Monday on Germany’s IFO Business Climate, US Chicago Fed’s National Activity Index, Durable Goods, and the Dallas Fed’s Manufacturing Index for near term direction. 

 

In the news: 

ABN Precious Metals Watch – will silver continue to catch up?:   https://insights.abnamro.nl/en/2019/08/precious-metals-watch-will-silver-continue-to-catch-up/

 

YTD Performance


12/31/2018

8/23/2019

Change
% Change
Gold


1282.5

1528

245.5

19.142%

DX


96.06

97.70

1.64

1.707%

S&P


2505

2852

347

13.852%

JYN


109.63

105.44

-4.19

-3.822%

Euro


1.1466

1.1081

-0.0385

-3.358%

US 10-year bond yield


2.69%

1.527%

-0.0116

-43.150%

Oil (WTI)


45.45

53.86

8.41

18.504%

 

 

Resistance levels: 

$1535 – 8/13 high

$1591 – 4/7/13

 

Support levels:

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

$1516 – pennant down trendline from 8/13 $1535 high

$1513 – 8/19 high

$1508 – double top - 8/20 and 8/21 highs

$1500 – options

$1504 – 8/22 high

$1502 – pennant up trendline from 8/13 $1480 low

$1497 – 8/21 low

$1493-4 – 5 bottoms 8/14, 8/19, 8/20, 8/22, 8/23  lows

$1485– 20-day moving average

$1480 – 8/13 low

$1472 – 8/7 low

$1457 – 8/6 low

$1450 – options

$1450 - 40-day moving average

$1438 – 8/5 low

$1438 – 50-day moving average

$1440 – up trendline from 5/30 $1275 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

$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 -  50% retracement of up move from 5/2 $1266 low to 8/13 $1535 high

$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

$1366 – 100-day moving average

$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

*$1325 – 200-day moving average

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