Gold Traders' Report - February 21, 2019

 
FEB 21, 2019

Gold pulled back last night, trading in a range of $1332.15 - $1341.55, fading some modest strength in the US Dollar (DX to 96.64).

The dollar was pressured by a firmer pound ($1.3026 - $1.3091) on comments from UK Finance Minister Hammond that threat of no-deal Brexit is “focusing minds” and encouraging compromise, increasing hopes that some MPs will reconsider and back May’s amended Brexit deal.

Global equities were mixed with the NIKKEI up 0.3%, the SCI was off 0.3%, European markets ranged from -0.6% to +0.4%, and S&P futures were +0.1%.

News from Reuters that the US and China had started to outline commitments in principle in their trade talks were a tailwind for stocks, as were firmer oil prices (WTI from $57.10 - $57.53, smaller than expected build in US oil inventories from the API report last evening).

At 8:30 AM, weaker reports on the US Philly Fed Index (-4.1 vs. exp. 14.8, low since 5/16), and Durable Goods (1.2% vs. exp. 1.8%), overcame a stronger Jobless Claims Report (216k vs. exp. 230k).

S&P futures softened (-10 to 2777), but the US 10-year bond yield continued its strengthening trend from overnight (2.643% - 2.688%). The DX dipped to 96.35, and helped gold bounce to $1337.

At 10 AM, more weak data contributed to further losses in US stocks (S&P -15 to 2769), with misses in Existing Home Sales (4.94M vs. exp. 5.0M) and Leading Indicators (-0.1% vs. exp. 0.2%).

Weakness in the Energy sector along with a decline in oil (WTI to $56.63, larger than expected build in US oil inventories from the EIA report, US production reaches 12M bpd) weighed on stocks.

The 10-year yield ticked down to 2.684%, but the DX rose. The dollar was lifted to 96.61 from weakness in the euro ($1.1323) and the pound ($1.3029) which were hurt by some pessimistic comments from the EU’s Brexit negotiator Barnier. Gold retreated in response, and tripped some sell stops under the overnight high at $1332 to reach $1330.

In the afternoon, US stocks trimmed losses (S&P-2 to 2782), with modest gains in the IT and Utilities sectors helping to offset the large decline in Energy.

The 10-year yield continued to advance, and reached 2.697% - a 1-week high - while the DX rose to 96.67.

Gold fell below support at the breakout level of prior resistance at $1326-27, and tumbled to $1324, where support ahead of the $1323 2/19 low held.

Later in the afternoon, US equities turned back down, taking out their opening lows (S&P finished -10 to 2775).

The US 10-year yield ticked down to 2.685%, while the DX edged lower to 96.60.

Gold had a modest bounce to $1327 before some late session, end of week profit taking knocked it back to make a fresh low at $1323. Gold was $1324 bid at 4PM with a loss of $16.

Open interest was up 5.9k contracts, reflecting some new longs to the early morning $1347 high followed by some new shorts on the subsequent dip in the afternoon to $1337. Volume was lower with 257k contracts trading.

Bulls were disappointed that gold’s selloff yesterday afternoon continued today, especially given the sharp selloff in US stocks, and just a modest rise in the US DX.

However, other bulls see the move as a healthy pullback within a solid uptrend. They note the up trendline from the 11/13 $1196 low ($1295) is still intact, and expect the yellow metal’s strong rally over the past three 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 1/29/19) released Tuesday 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 are hoping for gold to limit its consolidation to the prior resistance level - $1325-27, and then expect the market to mount a challenge of resistance at $1346-47 (2/20 and 4/20/18 highs).

Above here, bulls expect to trigger additional buying to challenge the next resistance levels $1353-56 (triple top – 4/12/18, 4/18/18 and 4/19/18 highs) and $1365-66 (triple top – 8/2/16, 1/25/18 and 4/11/18 highs).

Bears were pleased with gold’s retracement today, especially given the weak equity market and a muted move in the DX.

They remain comfortable selling into strength and will continue to use rallies as entry points for getting short(er).

They maintain that gold’s advance has been overdone – having rallied $70 since the $1277 low on 1/24 (5.48%), $114 since the $1233 low on 12/14 (9.25%), and $151 since the $1196 low on 11/13 (12.63%), and yielding an overbought 14-day RSI of 72 the prior day.

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 further momentum from the S&P eclipsing its 200-day moving average (2746) last week.

Bears also 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 the recent 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 should keep the US dollar well bid. Bears expect further long liquidation to continue and look for a test of initial support at $1323 (double bottom – 2/19 and 2/21 lows), followed by the prior 9-top high resistance level between $1315-18.

All markets will continue to focus on geopolitical events (especially Brexit developments), developments with the Trump Administration (especially on US-China trade, potential legal issues), oil prices, Q4 corporate earnings, and will turn to reports tomorrow on Japan’s CPI, German GDP and IFO, Eurozone CPI, US Baker Hughes Rig Count, Commitment of Traders, and comments from the Fed’s Bostic, Clarida, Potter, Williams, Daly, Bullard, Harker, and Quarles for near term direction.

In the news:

Resistance levels: 

$1325 - options

$1325 - 27 – 6 tops-  1/31, 2/18,  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

$1337 – 2/20 low

$1342 – double top - 2/19 and 2/21 highs

$1346-47 – double top 2/20 and  4/20/18 highs

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

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

*$1373-75 – double top – 7/6/16 and 7/11/16 highs

Support levels:

$1323 – double bottom – 2/19 and 2/21 lows

$1322-23 – quadruple top – 5/14/18, 1/30,  2/1, and 2/15 highs

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

$1316 – 20-day moving average

$1311 – 2/15 low

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

$1301 – 40-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

$1295– up trendline from 11/13 $1196 low

$1293 – 50-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

$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

$1258 – 100-day moving average

$1254 – 12/21 low

$1250 – options

$1247 – 200-day moving average