Gold Traders’ Report - August 30, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
AUG 30, 2019

  • Overnight activity – nervous and choppy, but trendline support holds

  • ·        Gold continued to soften last night, trading in a range of $1522 - $1533. 
  • ·        Retained its nervous and choppy tone – typical of a market at or near multi-year highs. 
  • ·        After a move down to its $1522 low (support at up trendline from 8/1 $1400 low) during early Asian hours, gold rallied up to its $1533 top during later Asian time, but was capped in front of resistance at the old support level of $1535.  
  • ·        Gold’s rebound faded pullbacks in S&P futures (-5 to 2922), the US 10-year bond yield (1.51%), and the US dollar (DX to 98.46).  The dollar was pressured from strength in the yen (106.54 – 106.29), which shrugged off mostly weaker Japanese economic data amid early risk off sentiment. 
  • ·        Gold retreated back to its $1522 low (trendline holds again) during European time, trading against a rebound in the DX to 98.61 (fresh 4-week high).  The dollar was lifted by a weakness in the euro ($1.1060 -$1.1032) from a miss on German Retail Sales, Eurozone CPI, and Italy’s GDP and ongoing political turmoil and the pound ($1.2187 - $1.2158) as a Scottish judge refused to block Johnson from suspending Parliament.  A move back up in the US 10-year bond yield (1.542%) and a bounce in S&P futures (+19 to 2946) helped by a statement from the Chinese Foreign Ministry (trade teams are maintaining effective communication) also weighed on the yellow metal.  Equities were firmer despite a tug down from oil (WTI to $55.72) from week ending profit taking.  
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  • ·        Open interest was off 10.8k contracts, showing a sizeable amount of long liquidation from yesterday’s selloff. 
  • ·        Volume was much higher with 481k contracts trading. 

 

Bullish Arguments: 

Bulls were disappointed with gold’s decline today, and its failure to hold above key technical support levels at $1522 (up trendline from 8/1 $1400 low).  However, bulls remain pleased with the strength and consistency of bargain hunting buying on price declines – despite the failure to hold $1522 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 the night before 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 29.4% 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 were pleased with gold’s 2nd consecutive decline, and that the market was pushed below key support at $1522 (up trendline from 8/1 $1400 low)especially after making a fresh 6-year high two nights ago.  Bearish technicians point to the key reversal day yesterday (new high at $1550 and finished below the prior day’s $1532 low) and expect more technical selling to emerge.  However, some bears were disappointed that the drop wasn’t more significant 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 61) 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 Retail Sales today) and the Eurozone that drove the German 10-year yield further into negative territory over the past months (German bund yield continues to hover 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), $1456 (up trendline from 5/30 $1275 low), $1438 (8/5 low), and $1430 8/2 low).

 

Looking ahead

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 this afternoon’s Commitment of Traders report followed by reports Monday on Japan’s NIKKEI PMI, China’s Caixin Manufacturing PMI, Eurozone PMIs, UK PMI for near term direction.

 

In the news: 

BofA’s Hartnet  turns bullish on stocks, commodities:   https://www.bloomberg.com/news/videos/2019-08-30/why-bofa-has-turned-bullish-on-stocks-commodities-video

 

On targeting the price of gold:   https://www.cato.org/blog/targeting-price-gold

 

YTD Performance


12/31/2018

8/30/2019

Change
% Change
Gold


1282.5

1520

237.5

18.519%

DX


96.06

98.95

2.89

3.009%

S&P


2505

2926

421

16.806%

JYN


109.63

106.28

-3.35

-3.056%

Euro


1.1466

1.0975

-0.0491

-4.282%

US 10-year bond yield


2.69%

1.525%

-0.0116

-43.224%

Oil (WTI)


45.45

54.96

9.51

20.924%

 

 

Resistance levels: 

$1522 – up trendline from 8/1 $1400 low

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

$1527 – 8/27 low

$1532 – 8/28 low

$1533 – 8/30 high

$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 – 8/30 low

$1513 – 8/19 high

$1510– 20-day moving average

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

$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

$1465 - 40-day moving average

$1457 – 8/6 low

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

$1454 – 50-day moving average

$1450 – options

$1438 – 8/5 low