Gold Traders' Report - February 6, 2019

Jim Pogoda, Trader, Gold Bullion International 
FEB 6, 2019

Trump’s State of the Union speech last night lacked major surprises, and market reaction was muted.  Gold was a tad lower but very steady, trading in a narrow range of $1311.45 - $1315.90.  After ticking up to its $1315.90 high during Asian time, the yellow metal slid to its $1311.45 low during early European hours as the DX improved from 96.03 – 96.24 (breached 100-day moving average at 96.19).  The dollar was boosted from weakness in the euro ($1.1409 - $1.1379) from a weaker German Factory Orders report and the pound ($1.2962 to $1.2925) on Brexit concerns.  Global equities were mostly weaker and gold supportive with the NIKKEI up 0.1%, the SCI was still closed, European markets were off from 0.1% to 0.4%, and S&P futures were -0.2%.  S&P futures edged lower after digesting Trump’s speech which raised the prospect of another US Government shutdown should his demand for border wall funding not be met.  A continued decline in oil (WTI from $53.85 - $52.86) from moderately higher than expected builds in both crude and gasoline inventories from the API report last night also weighed on stocks. 

 

Just ahead of and through the NY open, upbeat comments from Treasury Secretary Mnuchin on the US economy and US-China trade negotiations, along with stronger earning from GM lifted S&P futures (+5 to 2736), but the US 10-year bond yield retreated from 2.696% to 2.68%.  The DX - caught in the cross currents – worked lower, and traded down to 96.14.  Gold improved in response and traded up to $1315 – capped ahead of the overnight high.  

 

US stocks sold off after their open (S&P -13 to 2724), weighed by weakness in tech shares.  The 10-year yield slipped further to 2.673%, but the DX was firm around 96.20, from continued weakness in the euro ($1.1374 – 2-week lows).  Gold declined in response, and slid to $1312. 

 

Equities recovered to unchanged by late morning (S&P to 2737), helped by a recovery in oil (WTI to $54.26) from smaller than expected builds in both crude and gasoline in the EIA US Oil Inventory Report.  The 10-year yield bounced to 2.691%, and the DX took out its overnight high to reach 96.28 – a two week high.  Gold was pressured lower but held at $1311.50 – where it found support at the overnight low. 

 

US stocks turned modestly lower into the afternoon (S&P -10 to 2727), while the 10-year yield continued its bounce to 2.702%.  The DX climbed to 96.38, helped by persistent weakness in the euro ($1.1361) and a decline in sterling ($1.2935) after a prior bounce.  Gold sold off, breaching the overnight low and $1309 (double bottom – 2/4 and 1/30 lows, and former resistance level) to reach $1307.  Profit taking from stale bulls was seen. 

 

Later in the afternoon, equities pared some losses (S&P finished -6 to 2732), helped by some dovish comments from former Fed Chair Yellen (next rate move could be up or down).  The 10-year yield hovered around 2.70%, and the DX edged up to 96.41.  Gold slipped further to $1306, but was supported ahead of former resistance at $1303-05.  Gold was $1307 bid at 4PM with a loss of $8 .

 

Open interest was up 5.2k contracts, showing a net of new longs from yesterday’s advance.  Volume was lower, with just 138k contracts trading – reflecting the absence of Far Eastern participants who are celebrating Chinese New Year.  

 

Bulls were disappointed with the session’s $8  loss, and the failure to hold key support at $1309 – especially since equities pulled back.  However, other bulls thought that the damage could have been worse – given the strength in the US dollar (DX to 96.41, retaking 100-day moving average). Bulls remain comfortable with the yellow metal’s recent consolidation, and will use these dips to get long(er) – looking for the area of $1300 - $1303-05 (1/29 low, former resistance level) to be a near term floor. The bulls still feel that the trend is their friend, and note the up trendline from the 11/13 $1196 low ($1280) 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 last 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 further stale bull selling to lead to a breach of initial support at $1303-05 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 to tonight’s commentary from the Fed’s Quarles and Powell followed by reports tomorrow on Japan’s Leading Index, German Industrial Production, ECB’s Economic Bulletin, Bank of England’s Rate Decision, US Jobless Claims, Consumer Credit, and comments tomorrow from the Fed’s Kaplan and Clarida for near term guidance. 

 

In the news:

WGC – Global gold backed ETFs continued strong growth in January: https://www.gold.org/goldhub/data/global-gold-backed-etf-holdings-and-flows?utm_campaign=etf-flows-jan-19&utm_medium=email&utm_source=launch-email

 

Ross Norman – gold getting set for a bull run:   https://www.sharpspixley.com/articles/ross-norman-gold-getting-set-for-bull-run_289202.html

 

Heraeus Precious Forecast: https://www.heraeus.com/media/media/hpm/doc_hpm/precious_metal_update/forecast_1/HPM_EM_Forecast_EN.pdf

 

Resistance levels: 

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

$1311 – 2/5 low

$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:

$1306 – 2/6 low

$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

$1298 – 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

$1284 – 40-day moving average

$1280– up trendline from 11/13 $1196 low

$1280 – 1/25 low

$1277 – 79  6 bottoms – 12/28, 1/4, 1/21, 1/22, 1/23, and 1/24 lows

$1275 – 50-day moving average

$1275 – options

$1274 – 12/28 low

$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

$1245 – 100-day moving average