Gold Traders' Report - February 7, 2019

Jim Pogoda, Trader, Gold Bullion International 
FEB 7, 2019

Gold rebounded overnight, trading in a range of $1302.85 - $1310, still largely fading movement in the US dollar.  Gold softened to its $1302.85 low during Asian hours, where support at the $1303 low from 1/29 and prior resistance level held.  Gold was pressured by strength in dollar (DX from 96.38 – 96.68 two week high), which was boosted by ongoing weakness in the euro ($1.1368 - $1.1323, fresh two week low) from weaker German Industrial Production, and a cut in the growth forecast of the Eurozone from 1.9% to 1.3% in 2019 by the EC,  and the pound ($1.2940 - $1.2854, two week low) after the BOE slashed its 2019 growth forecast from 1.7% to 1.2% (softer global economy, Brexit uncertainty, CPI to fall below 2% in coming months). Global equities were softer and a tailwind for gold with the NIKKEI off 0.6%, the SCI remained closed for the New Year holiday, European markets were off from 0.1% to 1.0%, and S&P futures were -0.5%.  A dip in oil (WTI from $54.02 - $53.30) weighed on stocks.

 However, ahead of and through the NY open, gold rebounded to $1312 as the DX tumbled back to 94.49.  The greenback was pressured by a recovery in sterling ($1.2930, Carney says rate hikes can still happen) and the euro ($1.1348), along with a worse than expected reading on US Jobless Claims (234k vs. exp. 223k). 

 US stocks opened weaker (S&P -24 to 2707), spooked by concerns over global growth, and from concerns on forward guidance from Twitter, and shrugged off more dovish commentary from the Fed’s Kaplan (advocating a stop in rate hikes for now, as lagged effect of prior rate hikes has yet to fully impact the economy).  The US 10-year bond yield slipped to 2.659%, and the DX retreated to 96.43.  Gold ran into some selling, and tripped some sell stops under $1309 to reach $1306.  However, it quickly rebounded on bargain hunting back to $1311. 

 Later in the morning, news that Trump and Xi wouldn’t meet before the March 1 trade deadline sent US stocks further down (S&P -44 to 2687) with losses in the Energy, Materials, IT, and Communication Services Sectors lagging.  A further drop in oil (WTI to $51.75, demand concerns) contributed to the move.  The US 10-year yield hovered around 2.66%, and the DX fell further to 96.39.  Gold edged higher in response, reaching $1311.50. 

 US stocks pared losses in the afternoon (S&P finished -26  to 2706), while the US 10-year bond yield slipped to 2.65% - but the DX recovered to 96.56.  Gold traded narrowly between $1309.50 -$1311 and was $1310  bid at 4PM with a gain of $3 .

 Open interest was up 1.9k contracts, showing a net combination of some new shorts along with some bargain hunting new longs from yesterday’s decline.  Volume remained muted and just a little higher with 142k contracts trading.  The CFTC put out another delayed Commitment of Traders Report -  as of 12/31/18 – showing the large funds added 1.5k contracts of longs and cut 11.2k contracts of shorts to increase their net long position to 124k contracts.  This was done on gold’s advance from $1258 - $1284.  Gross shorts remained elevated, however, with the large funds still holding 86.3k contracts of short positions.  Though there has been some significant short covering in gold’s $40 rally since then – by following price action and open interest changes, there should still be a sizeable collective gross short position being held by the large fund community. This still sets up the gold market very well to continue to move higher as these shorts - when forced to cover - will exacerbate any upside moves. 

 Bulls were pleased with today’s $  advance – given that the US dollar remained firm and made fresh 2-week high, and that gold was able to bounce well off of support at $1303-05 (1/29 low, former resistance level).  However, some bulls were disappointed with the modest gain in light of the tumble in US stocks.  Bulls remain comfortable with the yellow metal’s recent consolidation, and will use 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 – as it held today.   The bulls still feel that the trend is their friend, and note the up trendline from the 11/13 $1196 low ($1281) 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 the delayed Commitment of Traders Report (as of 12/31/18) 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 - especially now in light of the UK and ECB slashing their growth forecasts.  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 Bullard followed by reports tomorrow on Japan’s Household Spending, Trade Balance, Housing Loans, Economy Watcher’s Survey, German Trade Balance, US Baker-Hughes Rig Count, and comments from the Fed’s Daly for near term direction.  

 In the news:

Precious metals refiners face new LBMA environmental standard: http://www.miningweekly.com/article/precious-metal-refiners-face-new-lbma-environmental-standard-2019-02-07/rep_id:3650

 Venezuela sold 73 tonnes of gold to Turkey, UAE last year:   https://www.reuters.com/article/us-venezuela-politics-gold/venezuela-sold-73-tonnes-of-gold-to-turkey-uae-last-year-legislator-idUSKCN1PV1XE

 Resistance levels: 

$1311 – 2/5 low

$1312 – 2/7 high

$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:

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

$1306 – 2/6 low

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

$1303 – double bottom – 2/7 and 1/29 lows

$1300 – psychological level, options

$1299 – 20-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

$1286 – 40-day moving average

$1281– 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

$1276 – 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

$1246 – 100-day moving average