Gold Traders' Report - February 27, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
FEB 27, 2019

Gold was choppy last night in a narrow range of $1325.75 - $1330. It traded up to its $1330 high during early Asian time, helped by a modest move down in the DX (96.02), and on the escalation of hostilities between India and Pakistan.

During early European time, the yellow metal slid to its $1325.75 low as the DX rebounded to 96.16, helped by a pullback in the torrid pound ($1.3262 - $1.3233) and the euro ($1.1395 - $1.1371).

Later during European hours, gold bounced back to $1328.75, as the DX fell to a fresh 3-week low of 95.88.

The greenback was pressured by another leg up in the pound ($1.3336 – 7-month high, lessening chances of no-deal Brexit), and a rebound in the euro ($1.1403, stronger Eurozone Confidence reports).

Global equities were mixed with the NIKKEI up 0.5%, the SCI gained 0.4%, European shares were off from 0.2% to 0.8%, and S&P futures were -0.3%.

A recovery in oil (WTI $55.53 - $56.85, API shows surprise draw in US oil inventories, Saudi’s al-Falih replies to Trump that they are “taking it easy”, saying we are interested in market stability first and foremost) were supportive of stocks.

At 8:30 AM, a miss on the US Goods Trade Balance (-$79.5B vs. exp. -$74.5B) was overshadowed by stronger reports on US Retail Inventories (1.0% vs. 0.7% last) and Wholesale Inventories (1.1% vs. exp .0.4%).

S&P futures traded up to 2791, and the US 10-year bond yield rose from 2.632% to 2.663%. The DX edged up to 96.04, and gold softened. It took out the overnight low to reach $1322.50, where support at the quadruple bottom at $1321-23 (2/18, 2/19, 2/21, and 2/26 lows) held.

At 10AM, a stronger than expected report on US Pending Home Sales (4.6% vs. exp. 0.8%) and an as expected reading on Durable Goods (1.2%) helped lift the 10-year yield to 2.688%, and brought the DX to 96.13.

Gold broke support at $1321-23, and traded down to $1319.50. US stocks failed to rally, however, as testimony from US Trade Rep Lighthizer that there is more work to do on a US-China trade deal along with some unflattering testimony about Trump from his former attorney Michael Cohen tugged them lower (S&P –18 to 2775).

Into the afternoon, US stocks rebounded to unchanged (2794), aided by more dovish comments from the Fed’s Powell (close to agreeing on ending balance sheet to end runoff later this year) and a rebound in oil (WTI to $57.37) from large draw in US oil inventories (8.6M bbl vs. API -4.2Mbb) - when a build was expected.

The 10-year yield hovered around 2.68%, while the DX climbed to 96.19. Gold fell further to $1317, with long liquidation seen.

Later in the afternoon, US stocks edged slightly lower (S&P finished -2 to 2792 ), while the 10-year yield ticked up to 2.697%. The DX slid to 96.14, and gold recovered to $1320. Gold was $1320 bid at 4PM with a loss of $9.

Open interest was up 3.7k contracts, showing a net of new longs (but a fair amount of new shorts) from yesterday. Volume was a little higher with 197k contracts trading.

Bulls were disappointed with gold’s inability to rally early this AM, given the dip in the DX to a fresh 3-week low.

They were also concerned about how sharply gold declined later in the session – when the DX only managed a modest advance. Further, they’re troubled with gold’s failure to gain in the past two weeks, when the DX has come off from 97.37 – 95.88 (1.53%).

However, the bulls are confident that the trend is their friend, note the up trendline from the 11/13 $1196 low ($1300) 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 2/12/19) released yesterday 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).

Bears cheered gold’s decline today – especially with the DX rebounding only modestly. They’re encouraged that key support at $1325-27 was finally broken and that the market has now made 5 consecutive sessions of lower highs.

While some bears took some profits under $1325-27, others 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.

They expect equities will find further momentum from the S&P eclipsing its 200-day moving average (2746) the prior week, and will get a further boost on a close over 2800.

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 the prior 9-top high resistance level between $1315-18, followed by $1311 (2/15 low) and $1303-05 – (5 bottoms - 1/29, 2/7,2/11, 2/13 and 2/14 lows).

If bears can get gold to breach $1300 (psychological level, options, up trendline from 11/13 $1196 low), they’re anticipating a significant amount of sell stops to bring support in the high $1270’s into play.

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, Trump –Kim summit), oil prices, Q4 corporate earnings, and will turn to reports tomorrow on Japan’s Industrial Production and Retail Trade, China’s PMI, German Import Prices and CPI, French GDP, US GDP, Jobless Claims, Personal Consumption, Core PCE, Chicago PMI, KC Fed’s Manufacturing Activity Index, and comments from the Fed’s Clarida, Harker, and Kaplan for near term direction.

In the news:

Resistance levels: 

$1321-23 – quadruple bottom – 2/18, 2/19, 2/21, and 2/26 lows

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

$1325 - options

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

$1330 – double top – 2/27 and 2/26 highs

$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:

$1320 – 20-day moving average

$1317 – 2/27 low

$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

$1306 – 40-day moving average

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

$1300 – psychological level, options

$1300– up trendline from 11/13 $1196 low

$1299 – 50-day moving average

$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

$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

$1263 – 100-day moving average

$1259 – 12/24 low

$1254 – 12/21 low

$1250 – options

$1247 – 200-day moving average