Gold Traders' Report - February 4, 2019

Jim Pogoda, Trader, Gold Bullion International 
FEB 4, 2019


Gold retreated last night in a range of $1309.95 - $1317.60.  It tripped some long liquidating sell stops under $1316-17 (double bottom, last 2 sessions lows) and $1315 – the prior resistance level –to bring it to its low.  The yellow metal was pressured from a stronger US dollar as the DX improved from 95.57 – 95.77.  The dollar was lifted by some weakness in the yen (109.44 – 109.91, safe haven interest waning), the pound ($1.3096 - $1.3043, weaker UK Construction PMI), and the euro ($1.1460 - $1.1437, miss on Eurozone Sentix and PPI).  Global equities were mixed with the NIKKEI up 0.5%, the SCI closed for Chinese New Year, European shares ranged from -0.4% to +0.4%, and S&P futures were flat.  A weaker Chinese Caixin PMI along with a pullback in oil (WTI from $55.40 - $54.60) from 1-month highs weighed on stocks.

 

US equities opened modestly firmer (+2 to 2708), and the US 10-year bond yield firmed from 2.695% to 2.724%.  The DX rose to 95.91, and pressured gold down to $1308.75 – where support from the 1/30 $1309 low and former resistance level held.  However, dip buying emerged, and brought gold rapidly back up to $1311.50.

 

At 10 AM, weaker reports on US Factory Orders (-0.6% vs. exp. 0.3%) and Durable Goods (0.7% vs. exp. 1.5%)  - both delayed reports from November – took US stocks lower (S&P -8 to 2698), with a further drop in oil (WTI to $53.27) contributing to the move.  However, the US 10-year yield continued to push higher (2.73%), while the DX retreated to 95.80.  The dollar was also hurt by a pop in sterling to $1.3102 from a report that the UK wouldn’t delay goods coming in from the EU in case of a no-deal Brexit.  Gold rebounded, and traded up to $1315.

 

US stocks recovered into mid-day (S&P +8 to 2715), with strength in the IT sector leading the advance, and aided by a bounce in oil (WTI to $54.34).  The 10-year yield hovered between 2.725% - 2.37%, and the DX improved to 95.90.  Gold came off in response, and slid to $1313.50. 

 

Later in the afternoon, a further surge in tech shares took US stocks higher (S&P finished +18 to 2725).  The 10 –year yield remained firm between 2.72% - 2.73%, and the DX was similarly steady around 95.85.  Gold edged lower to $1312, and was $1312 bid at 4PM with a loss of $5. 

 

Open interest was off only 1k, showing a small net of long liquidation from Friday’s decline.  Volume was lighter with 207k contracts trading. 

 

While bulls were disappointed with another pullback today, they were pleased that support at $1309 held well and generated strong buying interest.  In addition, they were encouraged that gold held fairly well for the rest of the session, despite the dollar largely holding its early gains, the climb in the US 10-year bond yield, and the strength in US equities.  The bulls still feel that the trend is their friend, and note the up trendline from the 11/13 $1196 low 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 Friday’s delayed Commitment of Traders Report (as of 12/24/18) 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 expect gold to take out resistance at $1322-23 (triple top – 5/14/18, 1/31, and 2/1 highs) and then $1325 – 26 (options,  5 top -  4/26/18, 4/27/18,4/30/18, 5/11/18, and 1/31/19 highs), and trip further buying to challenge $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 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 pullback seen in the last two sessions from an 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 6 weeks to continue.  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 will look for a breach of initial support at the former resistance at $1303-04 followed by $1295-98 to lead to a test of $1286-88 (6 bottoms – 1/10, 1/11, 1/14, 1/15, 1/16, and 1/17 lows). 

 

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 comments tonight from the Fed’s Mester, followed by reports tomorrow on Eurozone PMI’s and Retail Sales, UK PMI and Retail Sales, US Markit Services PMI, and  ISM Services for near term direction. 

 

In the news:

 

1266 tonnes of Swiss gold move to Asia and Middle East in 2018: https://www.sharpspixley.com/articles/lawrie-williams-1-266-tonnes-of-swiss-gold-move-to-asia-and-middle-east-in-2018_289102.html

 

Asahi to emerge as largest gold, silver refiner in US after Republic acquisition: https://www.spglobal.com/platts/en/market-insights/latest-news/metals/020419-asahi-to-emerge-as-largest-gold-silver-refiner-in-us-after-republic-acquisition-company-executive

 

Asia Gold – Chinese demand jumps; Indian buyers hold off with eye on budget: https://www.reuters.com/article/asia-gold-demand/asia-gold-chinese-demand-jumps-indian-buyers-hold-off-with-eye-on-budget-idUSL3N1ZW3R2

 

Maduro’s bid to fly gold out of Venezuela is blocked:   https://uk.finance.yahoo.com/news/maduro-regime-halts-plan-ship-173009364.html?guccounter=1

 

WGC – highest central bank buying in 50 years:   https://www.gold.org/news-and-events/press-releases/central-bank-buying-drives-growth-in-gold-demand-in-2018

 

Perth Mint’s Jan gold, silver sales rise:   https://finance.yahoo.com/news/perth-mints-jan-gold-silver-070804856.html

 

Mega mergers signal a $1400 gold price:   https://www.kitco.com/news/video/show/Kitco-News/2261/2019-02-04/Mega-Mergers-Signaling-This-Gold-Price----Corvus-CEO#_48_INSTANCE_puYLh9Vd66QY_=https%3A%2F%2Fwww.kitco.com%2Fnews%2Fvideo%2Flatest%3Fshow%3DKitco-News

 

Crypto CEO dies holding only passwords that can unlock millions in customer coins: https://www.bloomberg.com/news/articles/2019-02-04/crypto-exchange-founder-dies-leaves-behind-200-million-problem

 

Resistance levels: 

$1318 – 2/4 high

$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:

$1318 -19 – quadruple top 5/3/18, 5/7/18, 5/8/18 and 5/9/18 highs

$1316-17 – double bottom - 1/31 and 2/1 lows

$1315 – 5/15/18 high

$1312 – 1/29 high

$1309 – 6/14/18 high

$1309 –double bottom – 2/4 and 1/30 lows

$1303-05 – triple top, 6/15/18, 1/25, and 1/28  highs

$1303 – 1/29 low

$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

$1296 – 20-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

$1281 – 40-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

$1277– up trendline from 11/13 $1196 low

$1275 – options

$1274 – 12/28 low

$1271 – 50-day moving average

$1265-67  – 12/25, 12/26 ,and 12/27  lows

$1259 – 12/24 low

$1254 – 12/21 low

$1250 – options

$1246 – 200-day moving average