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Gold Traders' Report - February 12, 2019

Jim Pogoda, Trader, Gold Bullion International 
FEB 12, 2019

Gold climbed higher overnight in a range of $1306.55 - $1314.80, continuing to rebound off of the double bottom reached yesterday at $1303-04.  It dipped to its $1306.55 low during early Asian time off of the news that US lawmakers reached a tentative deal to avoid a government shutdown that drove stocks higher.  However, the yellow metal climbed during the rest of the night session, finally capped in front of resistance at $1315-18 (5 tops  - 2/4, 2/5, 2/6, 2/8, and 2/11 highs) - which has become a formidable resistance level for the market.  The gain was fueled by a pullback in the US dollar, which accelerated when the DX dipped below 97.  The greenback was pressured by a miss in the NFIB Small Business Optimism Index (101.2 vs. exp. 103), a recovery in the euro from 3-month lows ($1.1258 - $1.1298), and strength in sterling ($1.2851 - $1.2886, BoE’s Carney says Brexit could lead to new form of international cooperation and cross-border commerce).  Global equities were much stronger and a headwind for gold - lifted by optimism over avoiding a US government shutdown and on the US-China trade talks with the NIKKEI up 2.6%, the SCI up 0.7%, European markets were up from 0.4% to 1.2%, and S&P futures were +0.7%.  Firmer oil (WTI from $52.30 - $53.81) was supportive of stocks.

 US stocks opened firmer (S&P +25 to 2735), with broad strength seen - Financials, Industrials, Materials, Communication Services and Consumer Discretionary sectors all significantly higher.  The move was driven by the tentative deal to avoid the US government shutdown, along with perceived progress in the US –China trade negotiations, with some rumors that the March 1 deadline will be moved back.  The US-10-year bond yield – which had firmed overnight form 2.654% to 2.688% remained steady around 2.685%.  The DX, however, pulled back to 96.86, against further strength in the pound ($1.2896, May urges MPs for patience as she attempts to renegotiate the Irish border backstop issue) and the euro ($1.3103).  Gold was caught in the cross currents, and retreated to $1311. 

 At 10AM, a much stronger than expected reading on the US JOLTS job openings report (7.34M vs. exp. 6.84M) took US stocks higher (S&P +35 to 2745).  A further rise in oil (WTI to $54.02) contributed to the rally.  The 10-year yield climbed to 2.69%, and the DX had a bounce back to 97.  Gold was pressed lower in response, and traded down to $1308. 

 Stocks remained firm into the afternoon (S&P +38 to2748), boosted by some optimism from Trump on avoiding the US government shutdown (doesn’t expect a shutdown) and the US-China trade talks (may not stick to 3/1 deadline and said Beijing very much wants to make a deal).  The 10-year yield remained around 2.685%, but the DX continued to slide (96.65) against a resumed firming in the euro ($1.1340) and sterling ($1.2909). Gold was again caught in the cross currents, but recovered to $1312.50.

 Later in the afternoon, US stocks went out near their highs (S&P finished +35 to 2744) and the 10-year bond yield ticked down to 2.68%.  The DX hovered either side of 96.70, and gold traded narrowly between $1310.25 - $1311.25.  It was $1311 bid at 4PM with a $3 advance. 

 Open interest was off 3.2k contracts, reflecting some short covering from yesterday’s advance.  Volume was a little higher but remained subdued with 162k contracts trading.  The CFTC’s Commitment of Traders Report as of 1/15/19 (delayed data – will be issuing every Tuesday and Friday until current) showed the large funds adding 2.2k contracts of longs and adding 13.5k contracts of shorts to cut their net long position to 88k.  This was done on gold’s move up from $1285 to $1290. Gross shorts increased significantly for the 2nd consecutive week and remained elevated -  increasing to 114k contracts.  Though there has been some significant short covering in gold’s $36 rally since then – by following price action and open interest changes, there should still be a sizeable collective gross short position being held by the large fund community. This still sets up the gold market very well to continue to move higher as these shorts - when forced to cover - will help accelerate any upside moves. 

 Bulls were pleased with gold’s $3 gain today, given the strength in stocks, and tick up in the US 10-year bond yield.  However, other bulls were disappointed that gold couldn’t manage to at least test if not breach resistance at $1315-18 given the pullback in the US dollar to well below 97.  Bulls remain comfortable with the yellow metal’s recent consolidation, and will use dips to get long(er) – looking for the area of $1300 - $1303-05 (1/29 low, former resistance level) to be a near term floor.  The bulls still feel that the trend is their friend, and note the up trendline from the 11/13 $1196 low ($1285) is still intact, and expect the yellow metal’s strong rally over the past two months to carry further.  They’re expecting continued volatility in equity markets along with a pause in Fed rate hikes for a considerable period and a further decline in the US dollar to continue driving gold higher.  Bulls also point to the  delayed Commitment of Traders Report (as of 1/15/19) released today and estimates that the current COT Report still has the large funds with a significant gross short position.  Therefore, the bulls feel the gold market remains set up to move higher, as these shorts will provide fuel to further upside moves – when forced to cover.  Bulls expect gold to take out initial resistance at theat $1315-18 ( 6 tops  - 2/4, 2/5, 2/6, 2/8, 2/11, and 2/12 highs) which also breaches the pennant formation (down trendline from the 1/31 $1326 high). This should trip some short covering to lead to a test of $1322-23 (triple top – 5/14/18, 1/31, and 2/1 highs) and then challenge the recent high at $1325 – 26 (options,  5 tops -  4/26/18, 4/27/18,4/30/18, 5/11/18, and 1/31/19 highs).  Once this is broken, bulls expect some momentum following buying to test next resistance levels of $1332-33 (double top - 4/23/18 and 4/24/18 highs), $1336 (4/23/18 high), and then $1346 (4/20/18 high).

 Bears were disappointed that support at $1303-04 held again yesterday, and that strength in equities last night couldn’t penetrate that level.  However, bears still feel that gold’s advance has been overdone – having rallied $49 since the $1277 low on 1/24 (3.83%), $93 since the $1233 low on 12/14 (7.54%), and $130 since the $1196 low on 11/13 (10.87%).  The bears expect the recent pullback from the overbought condition (14-day RSI reached 74 on 1/31) will extend, and are comfortable selling scale up into strength.  They maintain that the 20% correction in equities – much of which occurred during very illiquid holiday trading – was also overdone, and expect the rebound seen over the past 8 weeks to continue.  Bears feel that the plunge in the US dollar seen since 12/14 (97.71 – 95.03, 2.74%) has also overshot, and look for the rebound in the greenback to carry forward and pressure gold lower.  Bears think that with last week’s severe cuts in growth estimates by the UK and ECB, along with a cut by the Reserve Bank of India, a recent change to lower guidance by the Bank of Australia, and China’s slowdown, the US is left as the global growth engine.  This, they feel dims expectations of a significant dollar pullback off of a more dovish Fed, and has contributed to the dollar’s advance from 95.16 to today’s 97.20 top, making 8 consecutive higher highs and higher lows.  Bears will look for further stale bull selling to lead to a breach of initial support at the $1303-04 –  the triple bottom and the pennant formation – the up trendline from the 1/28 $1298 low.  They expect some long liquidating sell stops under this level to lead to a test of $1295-98 (1/28 low, former resistance level) and then $1286-88 (6 bottoms – 1/10, 1/11, 1/14, 1/15, 1/16, and 1/17 lows).  

 All markets will continue to focus on geopolitical events (especially Brexit developments), developments with the Trump Administration (especially on US-China trade, government shutdown, potential legal issues), oil prices, Q4 corporate earnings, and will turn to comments tonight from the Fed’s Mester and George and reports tomorrow on Japan’s Corporate Goods Price Index, UK CPI and PPI, Eurozone Industrial Production, US MBA Mortgage Applications, CPI, Real Weekly and Hourly Earnings, Oil Inventories, and comments tomorrow from the Fed’s Bostic and Harker for near term direction. 

 In the news:

WGC Gold Investor February 2019:

 Italy’s League drafts terms for possible sale of gold reserves:

 China officially adds to gold reserves again:

 Resistance levels: 

$1315-18 – 6 tops  - 2/4, 2/5, 2/6, 2/8, 2/11, and 2/12 highs

$1315 – down trendline from 1/31 $1326 high

$1322-23 – triple top – 5/14/18, 1/30, and 2/1  highs

$1325 - options

$1325 - 26 – quadruple top -  4/26/18, 4/27/18,4/30/18, and 5/11/18 highs

$1332-33 – double top - 4/23/18 and 4/24/18 highs

$1336 – 4/23/18 high

$1346 – 4/20/18 high

$1353-56 – triple top – 4/12/18, 4/18/18 and 4/19/18 highs

*$1365-66– double top – 1/25/18 and 4/11/18 highs

 Support levels:

$1307-08 – double bottom -2/8 and 2/12  lows

$1303-05 – triple top, 6/15/18, 1/25, and 1/28  highs

$1303-04 – triple bottom – 1/29, 2/7, and 2/11 lows

$1304 – up trendline from 1/28 $1298 low

$1302 – 20-day moving average

$1300 – psychological level, options

$1298 – 1/28 low

$1295-98 – 8 tops – 1/3, 1/4, 1/10, 1/11, 1/14, 1/15, 1/16, and 1/17 highs

$1291 – 40-day moving average

$1287 – 1/23 high

$1286-88 – 6 bottoms – 1/10, 1/11, 1/14, 1/15, 1/16, and 1/17 lows

$1285– up trendline from 11/13 $1196 low

$1281 – 50-day moving average

$1280 – 1/25 low

$1277 – 79  6 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, and 1/24 lows

$1275 – options

$1274 – 12/28 low

$1265-67 – 12/25, 12/26 ,and 12/27  lows

$1259 – 12/24 low

$1254 – 12/21 low

$1250 – options

$1249 – 100-day moving average

$1246 – 200-day moving average