Gold Traders' Report - January 30, 2019

Jim Pogoda, Trader, Gold Bullion International 
JAN 30, 2019

Gold’s rally continued last night as it climbed further in a range of $1310.60 - $1316.

The yellow metal briefly breached resistance at $1315 (5/15/18 high) during Asian hours but was unable to attract follow-through buying to extend the advance.

The gain was once again fueled by a pullback in the US dollar (DX to 96.59), which was pressured by some expectations of dovishness from Powell later today, along with a modest rise in the euro ($1.1426 - $1.1450, stronger German GfK) and a bounce in the pound after the Brexit amendments votes yesterday ($1.3060 - $1.3121).

During European time, gold retreated to $1311.50 as the DX rebounded to 95.87, helped by a pullback in the pound ($1.3090) and the euro ($1.1422, weaker Eurozone Confidence reports).

Global equities were mixed, with the NIKKEI down 0.5%, the SCI off 0.7%, European shares ranged from -0.4% to +1.4%, and S&P futures were +0.3% (boosted by better results from Apple).

Oil prices were firmer (WTI from $53.09 - $54) and a tailwind for stocks, boosted by the API report of a smaller than expected build in US oil inventories, along with the ongoing concerns over Venezuela sanctions.

At 8:15 AM, the US ADP Employment Report was higher than expected (213k vs. exp. 183k). This along with better earnings from Boeing and Apple last night took US stocks higher (S&P +11 to 2651).

The US 10-year bond yield edged up to 2.729%, and the DX advanced to 95.99. The greenback was also aided by declines in sterling ($1.3055) and the euro ($1.1405) as the EU rejected May’s proposal to renegotiate Brexit terms. Gold was pressured lower to $1309.50 but found support ahead of the former resistance at $1309 – where bargain hunting buying quickly emerged to take the market back to $1310.50.

The Pending Home Sales Report at 10 AM was much worse than expected (-2.2% vs. exp. 0.5%, 12 straight monthly decline, lowest level in 5 years), and took S&P futures back to 2648. The 10-year yield edged down to 2.72%, and the DX pulled back to 95.84. Gold continued to rebound and reached $1312.25.

US stocks quickly recovered and climbed into the afternoon (S&P +28 to 2668), with the IT and Consumer Discretionary sectors leading gainers. The move was aided by a continuation in oil rally (WTI to $54.90) off of a smaller than expected build in crude and surprise draw in gasoline from the EIA’s oil inventory report. The US 10-year yield rose to 2.733%, while the DX clawed back to 95.92. Gold pulled back to support at $1309, with some profit taking seen ahead of the FOMC statement.

The FOMC statement at 2PM was extremely dovish. They cited inflation moving lower in recent months, and removed language that risks are roughly balanced along with wording that further gradual increases to the funds rate were expected.

They said the FOMC “will be patient” as it determines what future adjustments to the target range for the FF rate, and that they will consider adjusting the reduction of the Fed’s balance sheet if conditions warrant. Stocks soared (S&P +42 to 2682), and the US 10-year bond yield sank to 2.71%.

The DX plunged to 95.44, and gold rallied sharply. Gold took out its overnight high to reach $1317.75, where resistance at $1318 -19 (quadruple top 5/3/18, 5/7/18, 5/8/18 and 5/9/18 highs) capped the advance.

AT 2:30 PM, Powell went a step further, saying that the case for raising rates has weakened and that monetary policy is no longer accommodative, is appropriate right now and within the Committee’s view of neutral. Stocks moved higher (S&P +51 to 2691), and the 10-year yield fell to 2.692%.

The DX continued to slide, reaching a two-week low at 95.25, and briefly tripped its 200-day moving average at 95.27. Gold took out the $1318-19 level and $1322 (5/14/18 high) to reach $1323.40 – a fresh 8-month high.

Later in the afternoon, US stocks pared some gains (S&P finished +41 to 2681), while the US 10-year yield kept sliding (2.686%). The DX found support and recovered to 95.45, and gold pulled back to support at the former resistance at $1318-19. Gold was $1318 bid at 4PM with a gain of $8.

Open interest was off huge – 47k contracts. This was a combination of options related closeouts, along with some short covering from yesterday’s rally. Volume was much higher with 425k contracts trading – inflated by options activity and the ongoing Feb-April rollover.

Bulls were encouraged by the extension of gold’s rally last night to challenge $1315 and then the dovishness from the Fed that drove the market to a fresh 8-month high at $1323. The bulls 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 and a further decline in the US dollar to continue driving gold higher. While we haven’t seen the COT report in 6 weeks, bulls maintain that despite gold’s sharp rally, a significant amount of large fund shorts remain, and will provide further upside momentum when forced to cover.

Bulls expect gold to test initial resistance at $1318 -19 – (quadruple top 5/3/18, 5/7/18, 5/8/18 and 5/9/18 highs), followed by $1322-23 (double top – 5/14/18 and today’s high) and then $1325 – 26 (options, quadruple top - 4/26/18, 4/27/18,4/30/18, and 5/11/18 highs).

Bears think that gold’s advance has been overdone – having rallied $46 since the $1277 low on 1/24 (3.60%), $90 since the $1233 low on 12/14 (7.30%), and $127 since the $1196 low on 11/13 (10.62%). The bears feel this market is overbought (14-day RSI = 73.5) 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 month 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. 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 reports tomorrow on Japan’s Summary of Opinions and Industrial Production, China’s PMI, German Retail Sales and Employment Change, UK’s GfK Consumer Confidence, Eurozone GDP, US Challenger Job Cuts, Employment Cost Index, Personal Income, Personal Spending, PCE Deflator, Jobless Claims and Chicago PMI for near term direction.

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