Gold Traders' Report - February 25, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
FEB 25, 2019

The NIKKEI was up 0.5%, the SCI rallied sharply – 5.6%, European markets were flat to +0.3%, and S&P futures were +0.5%.

The US 10-year bond yield rose from 2.655% to 2.682%, with investors eschewing the safe haven.

The US dollar was caught in cross currents, and was tugged moderately lower (96.51 – 96.31), from strength in the yuan (6.7116 – 6.6717 -7-month high), the pound ($1.3050 – $1.3095, UK and EU are considering an extension of Article 50, avoiding the no-deal Brexit on 3/29) and the euro ($1.1330 - $1.1367).

Gold traded up to $1322, where resistance at Friday’s $1333 high capped the advance.

Just ahead of and through the NY open, comments from May (resisting delaying Article 50, restates belief that achieving Brexit by 3/29 was “within our grasp”) sent the pound ($1.3061) and the euro ($1.1348) lower, and boosted the DX to 96.47.

Gold weakened, and some selling on the NY open took it down to $1325.20 – where support from the old breakout level $1325-27 held.

However, a much weaker than expected Chicago Fed’s National Activity Index at 8:30 AM took S&P futures down momentarily, which was also weighed by a plunge in oil (WTI from $57.47 - $55.67, Trump tweets “oil prices getting too high, OPEC, please relax and take it easy.

World cannot take a price hike – fragile!”). The 10-year yield dipped to 2.677%, while DX pulled back to 96.37. Gold quickly reversed direction and shot past the overnight high to reach $1322.70 – but again was capped by Friday’s $1333 high.

US stocks climbed into mid-day (S&P +20 to 2813), with Trump’s delay on imposing additional tariffs on China still resonating.

Stocks were also lifted by a stronger reading on the Dallas Fed’s Manufacturing Activity Index (13.1 vs. exp. 4.8), with gains in Goldman, Caterpillar, GE (selling biopharma business to Danaher) and the Financials sector leading the advance.

The 10-year bond yield continued to rise (2.684%), and the DX turned higher to reach 96.61. Gold was pressured lower to $1325.50, but once again, support at the prior breakout level held.

Into the afternoon, equities trimmed some gains (S&P +8 to 2800), while the 10-year yield pulled back to 2.668%. The DX declined as well - touching 96.40 - and gold clawed back to $1328.25.

Later in the afternoon, US stocks continued to pullback (S&P finished +3 to 2796), while the US 10-year yield ticked up to 2.672%. The DX traded either side of 96.40, and gold hovered between $1326.50 - $1328. Gold was $1327 bid at 4PM, off $1.

Open interest was up 0.6k contracts, showing a small net of new longs from Friday’s advance. Volume was lower with 254k contracts trading.

Some bulls were disappointed that gold couldn’t hold its earlier gains off of the modest pullback in the dollar.

However, other bulls were relieved that the yellow metal was able to hold up as well as it did – given the strong equity rally, and were again impressed that gold finished over the key $1325-27 prior breakout level.

The bulls are confident that the trend is their friend, note the up trendline from the 11/13 $1196 low ($1298) 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 2/5/19) released Friday 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 feel that gold’s consolidation is over, and expect the market to mount a challenge of resistance of the double top 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).

Some bears are concerned that the key $1325-27 level held again. However, other bears 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%).

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 9 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 German GfK, US Housing Starts, Building Permits, House Price Purchase Index, S&P/Case Shiller Home Price Index, Richmond Fed Manufacturing Index, Consumer Confidence, and comments from the ECB’s Lane, UK’s Carney, and testimony from the Fed’s Powell for near term direction.

In the news:

Resistance levels: 

$1333 –double top 2/22 and 2/25 highs

$1336 – 4/23/18 high

$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:

$1325 – 2/25 low

$1325 - 27 – 6 tops-  1/31, 2/18,  4/26/18, 4/27/18,4/30/18, and 5/11/18 highs

$1325 - options

$1321-23 – triple bottom – 2/18, 2/19 and 2/21 lows

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

$1319 – 20-day moving average

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

$1311 – 2/15 low

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

$1304 – 40-day moving average

$1300 – psychological level, options

$1298– up trendline from 11/13 $1196 low

$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

$1296 – 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

$1261 – 100-day moving average

$1259 – 12/24 low

$1254 – 12/21 low

$1250 – options

$1247 – 200-day moving average