Gold Traders’ Report - August 27, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
AUG 27, 2019

Gold firmed moderately last night, trading in a range of $1526.60 - $1535.  The advance was capped at $1535, where resistance from the 8/13 high held.  Gold was fueled by a pullback in global bond yields (German 10-year from -0.662% to -0.681%,  UK 10-year from 0.565% to 0.528%, Japan’s 10-year from -0.25% to -0.266% ,and the US 10-year from 1.54% to  1.503%), and a decline in the US dollar (DX from 98.04 – 97.86).  The DX was pressured from strength in the yen (106.06 – 105.59, US-Japan trade deal hopes) and pound ($1.2208 - $1.2288, opposition leaders agree to work together to stop a no-deal Brexit).  Global equities were mostly firmer and a headwind for gold, however with the NIKKEI up 1.0%, the SCI was up 1.3% (China’s Industrial Profits stronger), European markets ranged from -0.1% to +0.5%, and S&P futures were flat.  Firmer oil prices (WTI from $53.80 - $54.44) were supportive of equities.

Ahead of the NY open, S&P futures advanced (+13 to 2895) while the US 10-year yield edged up to 1.515%.  The DX clawed back to 97.94, and gold retreated to $1529. 

US stocks opened firmer S&P (S&P +21 to 2899), helped by stronger readings on the US House Price Purchase Index, the Richmond Fed Manufacturing Index (1 vs. exp. -4), and Consumer Confidence (135.1 vs. exp. 129).  The 10-year yield ticked up to 1.516%, and the DX recaptured the 98 level to reach 98.04.  Gold slumped in response, but bargain hunting and a surge in sister metal silver (technical breakout over $17.70 to reach $18.04 – 19-month high) limited its decline to $1528.

During the late morning and into mid-day, US stocks turned down (S&P -18 to 2860), hurt by a tweet from China’s Global Times  questioning how sincere the Chinese side was to resuming trade talks (“China on Tuesday issued 20 directives to boost consumption, in an effort to further tap domestic market, not putting so much emphasis on trade talks. China's economy is increasingly driven internally, it's more and more difficult for the US to press China to make concessions”) and comments from former Fed Governor Bill Dudley (urged Fed officials not to lower interest rates simply as a backstop while the president continues his tit for tat battel with the Chinese that has escalated in recent days).  Losses in the Financials and Energy (oil slides to $53.68) sectors led the decline.  The US 10-year yield fell to 1.471%, and the 2-10 year spread became more inverted (-4bp), further spooking investors.  The DX remained fairly firm (hovers either side of 98) however, helped by softness in the euro ($1.1085).  Gold rallied sharply, taking out resistance at $1535 on the way to $1544, with both short covering and new longs seen. 

Later in the afternoon, US stocks pared losses (S&P finished off 9 to 2869), while the 10-year yield ticked up to 1.476%.  The DX remained firm at 98.05, and gold backed off to $1537.  However, near the close, bargain hunting buying lifted the yellow metal back to $1543, and it was $1543 bid at 4PM with a $15 gain.

Open interest was up 2.7k contracts, showing a net of new longs from yesterday’s advance.  Volume was lower but still very robust with 437k contracts trading. 

Bulls cheered today’s rally, and that gold was able to breach and hold resistance at $1535 (8/13 high), and finish within spitting distance of its $1549 6-year high made yesterday.  Bulls remain pleased with the strength and consistency of bargain hunting buying on price declines, as seen off of the $1527-29 levels today.  The bulls remain ecstatic with gold’s sharp advance that has extended to $274 (21.5%) from the $1275 low on May 30 to the $1549 6-year high yesterday that has brought in momentum following players.  Bulls were comfortable with Powell’s mildly dovish remarks on Friday at Jackson Hole and with the tough rhetoric on tariffs from the Chinese today.  They 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 99.6% chance of at least a 25bp cut, and a 0.4% chance of a 50bp cut.  The market is showing a high 60% chance of two hikes by the October meeting, and a 35.5% 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, Israel, 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 $1545 high followed by $1549 (yesterday’s high).  Beyond $1549, bullish technicians see no significant chart resistance until $1591, the high from 4/7/13. 

Many bears were stopped out on gold’s $15 rally today, but other bears with stronger hands used the advance to get short(er) at more attractive levels. Bears see gold as an overbought market that has risen $274 (21.5%) from the $1275 low on 5/30 (14-day RSI at 70) and expect a significant correction 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 hovering near record lows around -0.70%) 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: $1500, $1493-94 (5 bottoms, 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), 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 German Import Prices, GfK Consumer Confidence, US MBA Mortgage Applications, Oil Inventories, and comments from the Fed’s Barkin and Daly for near term direction. 

 

In the news:

Heraeus Precious Appraisal:   https://www.heraeus.com/media/media/hpm/doc_hpm/precious_metal_update/en_6/Appraisal_20190826.pdf

India gold hits record discount on summer 2019’s bull run:   https://www.bullionvault.com/gold-news/india-gold-082220192

  

YTD Performance


12/31/2018

8/27/2019

Change
% Change
Gold


1282.5

1543

260.5

20.312%

DX


96.06

98.04

1.98

2.061%

S&P


2505

2869

364

14.531%

JYN


109.63

105.75

-3.88

-3.539%

Euro


1.1466

1.1089

-0.0377

-3.288%

US 10-year bond yield


2.69%

1.476%

-0.0121

-45.048%

Oil (WTI)


45.45

54.99

9.54

20.990%

 

 

Resistance levels: 

$1545 – 8/27 high

$1549 – 8/26

$1591 – 4/7/13

 

Support levels:

$1535 – 8/13 high

$1527 – 8/27 low

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

$1525 – 8/26 low

$1526 - options

$1513 – 8/19 high

$1511 – pennant down trendline from 8/13 $1535 high

$1508 – pennant up trendline from 8/13 $1480 low

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

$1500 – options

$1504 – 8/22 high

$1497 – 8/21 low

$1495– 20-day moving average

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

$1480 – 8/13 low

$1472 – 8/7 low

$1457 – 8/6 low

$1456 - 40-day moving average

$1450 – options

$1446 – 50-day moving average

$1438 – 8/5 low

$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

$1371 – 100-day moving average

$1365-67– triple top – 8/2/16, 1/25/18 and 4/11/18 highs

$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

*$1328 – 200-day moving average

$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