Gold Traders' Report - February 28, 2019

Jim Pogoda, Senior Gold Trader, Gold Bullion International 
FEB 28, 2019

Gold rebounded overnight in a range of $1317.30 - $1327.30. It was boosted by news that Trump and Kim were unable to reach a deal last night, with their meeting cut short without holding a signing ceremony.

Global equities softened, also hurt by a miss in Chinese PMI with the NIKKEI off 0.8%, the SCI down 0.4%, European markets were off from 0.1% - 0.5%, and S&P futures were -0.3%. Weakness in oil (WTI from $57.02 - $56.43, soft Chinese PMI hurts demand prospects) weighed on stocks.

The US 10 year bond yield declined from 2.686% to 2.659% and the US dollar retreated. The DX slipped from 96.16 – 95.82 to make a fresh 3-weeek low, with strength in the safe-haven yen (111.03 – 110.66) and the euro (1.1365 - $1.1420, weaker US bond yields) pressuring the greenback.

Ahead of the NY open, however, gold pulled back to $1325 as S&P futures improved (2791), and the DX recovered to 95.90.

At 8:30 AM, the delayed Q4 US GDP was stronger than expected (2.6% vs. exp. 2.3%) as was the Core PCE (1.7% vs exp. 1.6%). S&P futures rose (-2 to 2792), and the 10-year bond yield reversed and popped to 2.706%. The DX climbed to 96.12, and gold retreated to $1319.

At 9:45 AM, a much stronger than expected reading on the Chicago PMI (64.7 vs. exp. 57.8, highest since 12/17) combined with some upbeat comments from White House Economic Advisor Larry Kudlow and Treasury Secretary Mnuchin (progress on China last week was fantastic, structural changes are there, our eco policies are working) to lift US stocks (S&P -1 to 2790).

The 10-year yield edged up to 2.722% (3-week high), and the DX advanced further to 96.29. Gold continued to fall and took out stops under last night’s and yesterday’s $1317 low to reach $1313 – where support ahead of the $1311 low from 2/15 held.

US stocks slipped during the late morning (S&P -9 to 2783), with losses in the Materials, Energy, and Consumer Discretionary sectors leading decliners.

A weaker than expected reading on the KC Fed Index (1 vs. exp. 6) contributed to the move. The 10-year yield ticked down to 2.17%, and the DX slipped to 96.03. Gold clawed back higher in response, and traded up to $1316.50.

In the afternoon, equities traded either side of unchanged, and the S&P finished with loss of 8 to 2784. The 10-year yield turned higher, however, and reached 2.728%. The DX was steady, trading narrowly between 96.14 – 96.19. Gold was similarly stable, and traded between $1313 - $1315. It was $1313 bid at 4 PM with a loss of $7.

Open interest was off 4.1k contracts, showing a net of long liquidation from yesterday’s drop. Volume was higher with 221k contracts trading.

Bulls were again disappointed with gold’s inability to rally significantly early this morning, given the pullback in the DX to a fresh 3-week low (95.82). Some were concerned with gold’s sharp (1.1%) decline today against just a 50bp rebound in the DX. Further, they’re troubled with gold’s failure to gain in the past two weeks, when the DX has come off from 97.37 – 95.82 (1.59%).

However, the bulls are confident that the trend is their friend, note the up trendline from the 11/13 $1196 low ($1302) 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 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 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 just a moderate rebound in the US dollar, and the decline in equities. They’re encouraged that gold couldn’t hold over key support at $1325-27 and that the market has now made 6 consecutive sessions of lower highs.

While some bears took some profits under $1315, 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 if the S&P can manage 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 at the double bottom at $1311-13 (2/15 and today’s low) followed by $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 news), developments with the Trump Administration (especially on US-China trade, potential legal issues), oil prices, Q4 corporate earnings, and will turn to comments tonight from the Fed’s Powell and Mester, reports tomorrow on China’s Caixin PMI, Japan’s Consumer Confidence, German Retail Sales and Unemployment Change, Eurozone PMI, Unemployment Rate, and CPI, US Personal Income, Personal Spending, PCE Deflator, Markit PMI, ISM Manufacturing, University of Michigan Sentiment, Baker-Hughes Rig Count, Commitment of Traders Report, and comments tomorrow from the Fed’s Bostic for near term direction.

In the news:

Resistance levels: 

$1317 – 2/27 low

$1319 – 20-day moving average

$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

$1327 – 2/28 high

$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: 

$1311-13 – double bottom 2/15 and 2/28  lows

$1306 – 40-day moving average

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

*$1302– up trendline from 11/13 $1196 low

$1300 – psychological level, options

$1300 – 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

$1265 – 100-day moving average

$1259 – 12/24 low

$1254 – 12/21 low

$1250 – options

$1247 – 200-day moving average