Jim Pogoda, Trader, Gold Bullion International
FEB 8, 2019
Gold firmed last night, trading in a range of $1307.85 - $1314.50 and continued to fade US dollar moves. The yellow metal dipped to its low of $1307.85 during Asian and early European time as the DX kept on its firming trend and reached a 5-week high at 96.70. The dollar was fueled by softness in the pound ($1.2960 - $1.2921) from ongoing Brexit concerns and the euro ($1.1345 - $1.1322), with yesterday’s cut in growth forecast by the EC for the Eurozone still resonating. However, gold rallied back during European time and reached its high of $1314.50 as the DX retreated to 96.49. A rebound in the euro ($1.1344, stronger German Trade Balance and French Industrial Production) and the pound ($1.2975, optimism ahead of PM May’s meeting with Irish PM Varadkar) weighed on the greenback. Gold was supported by mostly weaker global equities with the NIKKEI -2%, SCI still closed, European shares were up from 0.1% to 0.2%, and S&P futures were off 0.3%. A decline in oil (WTI from $52.69 - $52.08) contributed to the weakness in stocks.
US stocks opened softer and slid during morning hours (S&P -24 to 2682) amid lingering fears over US China trade and global growth concerns, with the Energy and Financials sectors lagging. Also weighing on the market was a story about Amazon’s CEO Jeff Bezos getting blackmailed by the National Enquirer. The US 10-year bond attracted some safe–haven flows, and pushed the yield down to 2.627% - a 1-week low. The DX slid further to 96.45, and gold took out its overnight high to reach $1315.60. However, esistance in front of$1316-18 (triple top - 2/4, 2/5, and 2/6 highs) capped the advance.
Equities trimmed some losses into the afternoon (S&P -3 to 2702), helped by White House comments that the March 1 trade deadline could be moved. The 10-year yield edged up to 2.636%, while the DX recovered to 96.65. Gold was pressured lower, but bargain hunting bids limited the dip to $1313.50. Later in the afternoon, US stocks turned slightly positive (S&P finished +2 to 2708). The US 10-year yield was steady around 2.634%, while the DX hovered either side of 96.65. Gold traded narrowly between $1313.50 - $1315, and was $1314 at 4PM with a gain of $4.
Open interest was off 5k contracts, reflecting a net of some early long liquidation followed by some later short covering from yesterday’s session. Volume was higher, but still subdued with 180k contracts trading. The CFTC’s Commitment of Traders Report as of 1/8/19 (delayed data – will be issuing every Tuesday and Friday until current) showed the large funds cutting 10.6k contracts of longs and adding 13.9k contracts of shorts to cut their net long position to 99k. This was done on gold’s move up from $1277 to $1298 on 1/3, and subsequent pullback to $1285 on 1/8. Gross shorts remained elevated, increasing to 100k contracts. Though there has been some significant short covering in gold’s $41 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.
Similar to yesterday, bulls were encouraged with gold’s ability to advance – despite the US dollar firming to a 5-week high - and the S&P finishing on the upside. 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. The bulls still feel that the trend is their friend, and note the up trendline from the 11/13 $1196 low ($1283) 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 1/8/19) released today 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 tops - 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 think that with yesterday’s 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 dims expectations of a significant dollar pullback off of a more dovish Fed. 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 reports tomorrow on China’s New Yuan Loans and Foreign Direct Investment, UK GDP, Trade Balance, Industrial Production, and Construction Output for near term direction.
In the news:
Russia mulls eliminating gold VAT: https://www.rt.com/business/450967-russia-eliminating-gold-tax/
Federal judge tells traders they can combine cases accusing JPMorgan of rigging metals market: https://www.cnbc.com/2019/02/07/federal-judge-tells-traders-they-can-combine-cases-accusing-jp-morgan-of-rigging-metals-market.html
Indian state of Assam to give gold to brides in pre-election giveaway: https://www.telegraph.co.uk/news/2019/02/07/indian-state-give-410-gold-every-bride-poor-family-pre-election/
Asia Gold – Indian jewelers stock up; holiday dims activity elsewhere: https://in.reuters.com/article/asia-gold-demand/asia-gold-indian-jewellers-stock-up-holiday-dims-activity-elsewhere-idINKCN1PX1AG?rpc=401&
CFTC, former UBS trader obtain court approval for settlement: https://financefeeds.com/cftc-former-ubs-trader-andre-flotron-obtain-court-approval-settlement/
Bank of England joins dovish global peers putting rates on hold: https://www.ft.com/content/f48f31b0-2af7-11e9-a5ab-ff8ef2b976c7
$1316-18 – 4 tops - 2/4, 2/5, 2/6, and 2/8 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
$1303-05 – triple top, 6/15/18, 1/25, and 1/28 highs
$1303 – double bottom – 2/7 and 1/29 lows
$1301 – 20-day moving average
$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
$1288 – 40-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
$1283– 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
$1278 – 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
$1247 – 100-day moving average
$1246 – 200-day moving average