Gold Traders’ Report - August 29, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
AUG 29, 2019

  • ·        Gold remained nervous and choppy overnight, trading in a range  of $1533.80 - $1550.40. 
  • ·        It rose to its $1550.40 high during Asian and early European time, fading weakness in the US dollar (DX to from 98.23 – 98.16) against some strengthening in the yen (106.20 – 105.81, BOJ’s Suzuki warns against negative effects of lowering rates further, risk off), a modest softening in the US 10-year bond yield (1.468% - 1.447%), and a move lower in S&P futures (-14 to 2876).
  • ·         Equities softened from news that China was sending fresh troops into Hong Kong ahead of a planned march by protesters calling for full democracy for the city. 
  • ·        Markets reversed later on conciliatory comments from Gao Feng of China’s Ministry of Commerce (rejects escalation of the trade war, willing to negotiate and collaborate to solve this problem with calm attitude, says the Chinese and US trade delegations have maintained effective communication, indicated it wouldn’t immediately retaliate against the latest US tariff increase announced by Trump last Friday). 
  • ·        S&P futures rallied (+28 to 2918), and the US 10-year bond yield climbed to 1.505%.  The DX took out yesterday’s 98.27 high to reach 98.32, and gold was forced lower.  The yellow metal retreated briefly under $1535 to reach $1533.80, but once again, bargain hunting bids emerged to take the market back to $1539. 
  • ·        Revision to US Q2 GDP was 2.0% as expected but lower than the 2.1% first reported. 
  • ·        Core PCE missed slightly (1.7% vs. exp. 1.8%) as did Jobless Claims (215k vs. exp. 214k). 
  • ·        However, Personal Consumption (4.7% vs. exp. 4.3%), the Goods Trade Balance (-$72.3B vs. exp. -$74.6B) and Retail Inventories (0.8% vs. exp. 0.2%) were all stronger. 
  • ·        S&P futures edged lower (2913), as did the 10-year yield (1.478%).  The DX dipped to 98.22, and gold continued to recover to $1545. 
  • ·        US stocks opened stronger and rallied into the early afternoon (S&P +41 to 2930) helped by some upbeat comments from Trump on US-China trade (set to have talks today at a “different level”), and overcame a miss on US Pending Home Sales (-2.5% vs. exp. 0).  
  • ·        Strong gains in the Industrials, IT, and Financials sectors paced the advance, with firmer oil (WTI to $56.85) aiding the move. 
  • ·        The 10-year yield climbed to 1.533% (weak 7-year auction also supportive), and the DX rose to 98.55 (took out triple top at 98.45-46 to make 4-week high). 
  • ·        Gold slumped in response, and broke support at $1535.  Some sell stops were hit under that level and $1532 (8/28 low), $1527 (8/27 low) and $1525 (8/26 low) to reach $1520.  A fair amount of long liquidation was seen (profit taking ahead of long weekend).   
  • ·        Open interest was off 6.4k contracts, showing a net of long liquidation from yesterday’s decline. 
  • ·        Volume was a little higher with 382k contracts trading. 

 

Bullish Arguments: 

Bulls were disappointed with gold’s $10 pullback today, and its failure to hold above key technical support levels at $1535 and $1525.  However, they were encouraged that the market did make a fresh 6-year high early this morning at $1550, and managed to hold above support at $1525 and $1517 (up trendline from 8/1 $1400 low), keeping the strong up trend intact – despite the strong gains in equities, the DX, and the rebound in the 10-year bond yield.  Bulls remain pleased with the strength and consistency of bargain hunting buying on price declines – despite some key support levels failing today.  The bulls remain ecstatic with gold’s sharp advance that has extended to $275 (21.6%) from the $1275 low on May 30 to the $1550 6-year high last night that has brought in momentum following players.  Bulls have benefitted from the recent escalation of the ongoing trade war between the US and China that led to both sides increasing tariffs last week along with increasing tough rhetoric.  They feel that this issue won’t be solved anytime soon, and instead expect further escalation to ensue.  They feel this will add to further uncertainty, and increase the probability of a more severe global economic slowdown.  This along with Powell’s dovish tone last week at Jackson Hole will  only increases chances the Fed (and other central banks) will need to cut interest rates again and more aggressively, fueling further gains in gold.  Though probabilities for future rate cuts declined today, Fed Fund Futures still show relatively high chances of an aggressively dovish Fed:  95.8% chance of a 25bp cut at the September meeting, a 55.3% chance of two 25bp cuts by the October meeting, and a 31.1% likelihood of three 25bp cuts by the December meeting. Bulls also see current geopolitical tensions – especially the situations between Hong Kong and Mainland China, Brexit, Israel, Syria, and Iran and North Korea - as additional tailwinds for gold.  Bulls will look for the market to consolidate around $1525, and then retest resistance at $1535 (8/13 high and former support), $1545 (8/27 high), $1547 (8/28 high),  and then challenge $1549 - $1550 (double top - 8/26 and 8/29 highs).  Beyond $1550, bullish technicians see no significant chart resistance until $1591, the high from 4/7/13.  

 

Bearish arguments:

Bears cheered gold’s $10 decline today, and that the market was pushed below key support at $1535 - especially after making a fresh 6-year high last night.  Bearish technicians will point to the key reversal day today (new high at $1550 and finished below yesterday’s $1532 low) and expect more technical selling to emerge.  However, some bears were disappointed that the drop wasn’t larger to take out support at $1517 (up trendline from 8/1 $1400 low) given the magnitude of the rallies in stocks, the dollar, and the rise in the US 10-year bond yield – and remain concerned with the persistent bargain hunting buying that has cushioned downside moves.  Bears see gold as an overbought market that has risen $275 (21.6%) from the $1275 low on 5/30 (14-day RSI still elevated at 63) and expect a more 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 (weak German Import Prices yesterday) and the Eurozone that drove the German 10-year yield further into negative territory over the past months (German bund yield reached another record low yield yesterday at -0.728%) 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), $1456 (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), oil prices, and will turn to reports tomorrow on Japan’s Jobless Rate, CPI, Retail Sales, Housing Starts, Construction Orders, and Industrial Production, German Retail Sales, UK Consumer Confidence, Eurozone Unemployment and CPI, Italian GDP, US Personal Income, Personal Spending, PCE Deflator, Core PCE, Chicago PMI, University of Michigan Consumer Sentiment, Baker Hughes Rig Count, and Commitment of Traders Report for near term direction. 

 

In the news:  

Julius Baer – uncertainties are driving up gold prices:   https://www.cnnmoney.ch/shows/living-markets/videos/julius-baer-carsten-menke-uncertainties-driving-gold-prices

Recession fears have investors going to gold – Van Eck:   https://au.sports.yahoo.com/recession-fears-have-investors-going-to-gold-as-a-hedge-prices-are-skyrocketing-162108787.html

Jeff Christian – central bank gold buying patterns, motivations and levels:   https://www.bnnbloomberg.ca/commodities/video/gold-could-rise-to-2-000-in-the-next-5-to-10-years-cpm-group~1766093

 

YTD Performance


12/31/2018

8/29/2019

Change
% Change
Gold


1282.5

1528

245.5

19.142%

DX


96.06

98.45

2.39

2.488%

S&P


2505

2925

420

16.766%

JYN


109.63

106.50

-3.13

-2.855%

Euro


1.1466

1.1057

-0.0409

-3.567%

US 10-year bond yield


2.69%

1.496%

-0.0119

-44.304%

Oil (WTI)


45.45

56.56

11.11

24.444%

 

 

Resistance levels: 

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

$1527 – 8/27 low

$1532 – 8/28 low

$1535 – 8/13 high

$1545 – 8/27 high

$1547 – 8/28 high

$1549 - $1550 –double top - 8/26 and 8/29 highs

$1591 – 4/7/13

 

Support levels:

$1525 – 8/26 low

$1525 - options

$1517 – up trendline from 8/1 $1400 low

$1513 – 8/19 high

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

$1506– 20-day moving average

$1504 – 8/22 high

$1500 – options

$1497 – 8/21 low

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

$1480 – 8/13 low

$1472 – 8/7 low

$1462 - 40-day moving average

$1457 – 8/6 low

$1456 – up trendline from 5/30 $1275 low

$1452 – 50-day moving average

$1450 – options

$1438 – 8/5 low