Gold Traders' Report - February 5, 2019

Jim Pogoda, Trader, Gold Bullion International 
FEB 5, 2019

Gold rebounded last night, trading in a narrow range of $1310.80 - $1315.35, but in a choppy fashion.  It rallied to its $1315.80 high during Asian time - despite the dollar remaining fairly steady (DX between 95.81-95.86) - boosted by some dovish comments from the usually hawkish Fed’s Mester (said the Fed’s wait and see approach on rate remains “well-calibrated”).  Gold dippped during European time to its low of $1310.80, as the DX rose to 96 – a two –week high.  The greenback was lifted by weakness in the euro ($1.1440 - $1.1412) from weaker German PMI data and the pound ($1.3051 - $1.2998) on soft PMI data and concerns Brexit is going nowhere as May caters to hard-Brexiteers with the Irish backstop remaining unresolved.    Ahead of the NY open, however, gold bounced back to $1314.50 as the DX pulled back to 95.89.  Global equities were mostly firmer and weighed on gold with the NIKKEI off 0.2%, the SCI remained closed, Eurozone shares were up from 0.9% to 1.1%, and S&P futures were up 0.1%.  A pullback in oil (WTI from $55.21 - $54.10) was a headwind for stocks. 

After the NY open, a dip in the US 10-year bond yield (2.736% to 2.689%) tugged  the DX down to 95.88.  Gold climbed in response, and took out its overnight high to reach $1317, where resistance held in front of yesterday’s $1318 high.  

 

US stocks opened stronger (S&P +13 to 2738) with the IT and Consumer Discretionary sectors leading the advance, shrugging off a dip in Alphabet (stronger earnings were offset by rising costs) and a miss in ISM Services (56.7 vs. exp. 57).  The 10-year yield edged higher to 2.698%, and the DX popped to 96.12.  The dollar was helped by further weakness in the pound ($1.2925) and the euro ($1.1401).  Gold retreated in response – albeit in a choppy fashion amid decent dip buying – down to $1312.75.

 

Into the mid-day, US equities erased their gains (S&P -1 to 2724), with a further decline in oil (WTI to $53.46) contributing to the move.  The US 10-year yield hovered around 2.70% while the DX moved modestly lower to 96.01,  Gold recovered, and clawed back to $1314.75. 

 

In the afternoon, US stocks turned back up (S&P finished +13 to 2738) after some dovish comments from the Fed’s Kaplan (“prudent for the Fed to exercise patience and refrain from taking further action on the federal funds rate until the economic outlook becomes somewhat clearer”).  The 10-year yield rose to 2.709%, while the DX ticked up to 96.07.  Gold was fairly resilient, and only edged down to $1314.  It was $1314 bid at 4PM with a gain of $3.

 

Open interest was off 1.8k, showing a net of long liquidation from yesterday’s decline.  Volume was much lighter, with just 166k contracts trading. 

 

Bulls were encouraged with gold’s $3  advance today – despite the move in the DX past 96, and the advance in US stocks.  They’re comfortable with the yellow metal’s recent consolidation, and pleased that the old resistance at $1309 seems like a decent near-term floor, and welcome dips to add to their long positions.  The bulls still feel that the trend is their friend, and note the up trendline from the 11/13 $1196 low ($1279) 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 recent pullback from the 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 $1309 (double bottom – 2/4 and 1/30 lows, former resistance level) and then the former resistance at $1303-04 to lead to a test of $1295-98 (1/28 low, former resistance level) and then $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 tonight’s State of the Union Address followed by reports tomorrow on German Factory Orders and Construction PMI, US MBA Mortgage Applications, Trade Balance, Productivity and Oil Inventories for near term guidance. 

 

In the news:

WGC – The relevance of gold as a strategic asset:   https://www.gold.org/goldhub/research/relevance-of-gold-as-a-strategic-asset-2019?utm_source=launch-email&utm_medium=email&utm_campaign=wgc-2019-relevance-of-gold

 

EU moves to make UK charge VAT on commodity trading including ICE Europe: https://uk.reuters.com/article/uk-commodities-eu-tax-britain/eu-moves-to-make-uk-charge-vat-on-commodity-trading-include-ice-europe-idUKKCN1PU1PW

 

2019 precoius metals forecast webinar:   https://www.youtube.com/watch?v=ccrgxPLCmVw&feature=youtu.be

 

Silver Institute  - silver market trends 2019:   https://www.silverinstitute.org/silver-in-industry/

 

Trump’s State of Union promises fresh political fireworks:   https://www.bloomberg.com/news/articles/2019-02-05/trump-s-state-of-union-expected-to-underscore-political-rancor

 

 

Resistance levels: 

$1318 – double top  - 2/4 and 2/5 highs

$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:

$1311 – 2/5 low

$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

$1297 – 20-day moving average

*$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

$1283 – 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

$1273 – 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

$1244 – 100-day moving average