Gold Traders' Report - February 14, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
FEB 14, 2019

Gold softened overnight, trading in a range of $1302.50 - $1309.80.  It climbed to its $1309.80 high during Asian and early European time, lifted by a decline in the US dollar (DX from 97.27 – 96.96).

The dollar was pressured by strength in the euro ($1.1248 - $1.1295) as German GDP was flat and avoided recession and the pound ($1.2842 - $1.2877) from an increased likelihood of a delayed Brexit.

Later during European hours, gold slid to its low of $1302.50, where support at $1303-05 (4 bottoms – 1/29, 2/7,2/11, and 2/13 lows and up trendline from 1/28 $1298 low) held.

It was driven lower by a rebound in the dollar (DX to 97.29 – fresh 2 month high) which was aided by a pullback in the pound ($1.2798, pro-Brexit will not support UK Government in today’s vote) and the euro ($1.1250).

Mostly firmer global equities were a headwind for gold, aided by a report that Trump was weighing a 60-day extension to the March 1 deadline on US-China trade negotiations.

The NIKKEI was flat, the SCI was off 0.1%, Eurozone shares were up from 0.3% to 0.7%, and S&P futures were +0.4%.  Firmer oil (WTI from $53.90 - $54.65, increase in Chinese imports) aided the strength in stocks.

At 8:30 AM, a huge miss on US Retail Sales (-1.2% vs. exp. 0.1%, worst drop in 9 years) trashed S&P futures (2760 – 2732) and sent the US 10-year bond yield plunging from 2.69% to 2.645%.

The DX fell to 96.94, and gold – which was on the ropes and in danger of penetrating key support at $1303 – turned and rallied sharply.

Buy stops were hit over the night’s high of $1310 to reach $1312.70, with short covering seen. Misses in US PPI (-0.1% vs. exp. 0.1%) and Jobless Claims (239k vs .exp. 225k) contributed to the move.

US stocks pared losses after their open (-4 to 2748), aided by some dovish commentary from the Fed’s Brainard (balance sheet trimming should end this year), and stronger earnings and guidance from Cisco.

The 10-year yield edged back to 2.666%, and the DX climbed back to 97.27.

Gold retreated in response and pulled back to $1307.50.

During the late morning hours, a report from Bloomberg that the US and China trade teams were said to be far apart on reform demands knocked US stocks back down (S&P -26 to 2736).

The 10-year yield ticked down to 2.659%, and the DX was tugged back to 97.16.  Gold rebounded and clawed back to $1311.50.

Into the afternoon, US stocks rebounded and turned positive (+2 to 2755), with a recovery in oil ($53.10 - $54.42) aiding the move.

Gains in the Communication Services, Health Care, and Energy sectors led the rebound.  The 10-year yield hovered around 2.66%, but the DX continued to soften (97).

The greenback was under pressure from the bounce in the pound ($1.2813) and the euro ($1.1298).

Gold rose and took out its prior high at $1312.70 to reach $1314.50, where it ran into the stiff resistance at $1315-18 (8 tops  - 2/4, 2/5, 2/6, 2/8, 2/11, 2/12, and 2/13 highs).

Later in the afternoon, US stocks turned back down (S&P finished -7 to 2746 ), while the US 10- year yield continued to hover around 2.66%. The DX edged up to 97.05, and gold pulled back to $1311. Gold was $1312 bid at 4PM with a gain of $5.

Open interest was up 3.8k contracts, showing a net of early new longs up to $1318 followed by some new shorts down to $1305 from yesterday.  Volume increased with 226k contracts trading.

Bulls were relieved that just when gold was on the ropes and challenging support at $1303 this morning, it was saved by the anemic US Retail Sales report.

However, other bulls were disappointed that resistance at $1315-18 continued to be firm - despite the DX dipping below 97 multiple times during the session.

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 ($1288) 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 Tuesday and estimates that the current COT Report still has the large funds with a significant (114k contracts) 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 finally take out stiff initial resistance at $1315-18 (9 tops - 2/4, 2/5, 2/6, 2/8, 2/11, 2/12, 2/13, and 2/14 highs).

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 conversely thwarted by the lousy US Retail Sales report – just as they felt gold was on the verge of tripping expected long liquidation below $1303. 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, and will find momentum from the S&P eclipsing its 200-day moving average – which managed to hold on today’s close.

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 yesterday’s 97.20 top.

Bears will look for further stale bull selling to lead to another test of initial support at the $1303-05 –  (5 bottoms  – 1/29, 2/7,2/11, 2/13 and 2/14 lows 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).

In the news:

Resistance levels:

$1312 – down trendline from 1/31 $1326 high


$1315-18 – 9 tops  - 2/4, 2/5, 2/6, 2/8, 2/11, 2/12, 2/13, and 2/14 highs


$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:


$1303-05 – 5 bottoms  – 1/29, 2/7,2/11, 2/13 and 2/14 lows


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


$1304 – 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


$1293 – 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


$1284 – 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


$1252 – 100-day moving average


$1246 – 200-day moving average